Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 17%. A share of stock...

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Question

Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 17%. A share of stock sells

Answer 1

Answer #1

Required return=risk free rate+beta*(market rate-risk free rate)

=5+1.1*(17-5)

=18.2%

Required return=(D1/Current price)+Growth rate

0.182=(5/51)+Growth rate

Growth rate=0.182-(5/51)

=0.0839607843

Expected price=Current price*(1+Growth rate)

=$51*(1+0.0839607843)

=$55.28(Approx).

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Answer 2

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