Question

A stock with a beta of 0.6 just paid a dividend of $5.60 and is priced at $324.00. If the risk-free rate is 2 % and the market risk premium is 6%, what is the expected growth rate for the stock? A. 5.07% B. 4.98% C. 2.63% D. 3.81%

Answer 1

Formula for Re:
Capital Asset pricing model:

As per CAPM model:
Re= Rf+(Rm-Rf)B

Re= required rate of return.
Rf= Risk-free rate.
Rm = Return on market.
Rm-Rf =Market Risk Premium.
B = Beta, systematic risk.

Answer: D. 3.81%

Re = 2 + 6x 0.6 = 5.64 P= Do Citg) Re-g Pe price Doa dividend g = growth rate just paid 329= 5.60 (179) 0.056-9 18.144 - 3249 = 5.60 + 5-609 329-69 = 12.964 9 = 0.0381 g= 3.81 % D. 3.817