1. Suppose that the ABC company is expected to be worth $50 per share one year...

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Answer 1

Answer #1

Req ret = Rf + Beta [ Rm - Rf ]

= 3% + 1.2 [ 15% - 3% ]

= 3% + 1.2 [ 12% ]

= 3% + 14.4%

= 17.4%

price Today = PV of CFs from it.

= [ Expected Price after 1 Year + Div ] / [ 1 + Ke ]

= [ $ 50 + $1 ] / [ 1 + 0.174 ]

= $ 51 / 1.174

= $ 43.44

Expected Price Today is $ 43.44

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Answer 2

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