Nantes Corporation%u2019s common stock sells for $51.25 a share and its current

Question

Nantes Corporation%u2019s common stock sells for $51.25 a share and its current annual dividend is $5. The %u03B2 of this stock is 1.3. It has shown 3% annual growth in dividends for many years. The current riskless rate is 4%. Today, the analysts downgraded the stock from %u2018buy%u2019 to %u2018hold%u2019. In response to the news, the stock dropped in price by $1.25. Assume that the stock will maintain the growth in dividends.

(A) Find the new %u03B2 of the stock.  

(B) Expected return of the market.

Explanation / Answer

.

%u03B2 = 1.347

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