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First Bank is a financial service firm that is in stable growth. Its current earnings are...

First Bank is a financial service firm that is in stable growth. Its current earnings are expected to grow 5% a year in perpetuity, and its stock has a beta of 0.90. If the Treasury bond rate is 6%, the market risk premium is 5.5%, and the stock is trading at a current PE ratio of 10.59, estimate First Bank’s return on equity.

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Answer #1

Ret on Equity = Risk Free Ret + Beta ( Market Risk Premium )

= 6% + 0.9 ( 5.5% )

= 6% + 4.95%

= 10.95%

Pls comment, if any further assistance is required.

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