The risk-free rate of return is 4%, the required rate of return on the market is

Question

The risk-free rate of return is 4%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.40 and g = 4%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Share price

$

The risk-free rate of return is 4%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.40 and g = 4%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

expected return = risk-free rate + beta * (expected return on the market - risk-free rate)

=4+1.5*(12-4) = 16%

Price = upcoming dividend/( required rate of return - growth rate)

= 2.4/(0.16-0.04) = 20

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