Homework Answers
Expected return = risk free rate + beta * market risk premium
= 3.37% + 0.55 * (13.76% - 3.37%)
= 9.0845%
price = dividend next year/(Required return - growth rate)
=>
39.38 = 2.65/(0.090845 - growth rate)
=>
growth rate g = 0.090845 - 2.65/39.38
= 0.02355195784
price in year 1= 2.65 * (1+0.02355195784)/(0.090845-0.02355195784)
= 40.31
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