The risk-free rate of return is 6%, the required rate of return on the market is...
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The risk-free rate of return is 6%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.0. If the dividend per share expected during the coming year, D1, is $2.00 and g = 4%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Share price |
Homework Answers
| 1] | Required return per CAPM = risk free rate+beta*(expected return on the market-risk free rate) | |
| = 6%+1*(12%-6%) = | 12.00% | |
| 2] | Price per the constant dividend growth model = D1/(r-g) = 2/(0.12-0.04) = | $ 25.00 |
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