1) Your company\'s stock sells for $150 per share, its last dividend was $3.00 p
ID: 2769481 • Letter: 1
Question
1) Your company's stock sells for $150 per share, its last dividend was $3.00 per share, and its growth rate is 4%. What is the stock's required rate of return?
(2)What is the stock's Beta if the average market return for the stock is 12%, and the interest yield on 10-year US Treasury Bonds is 4% and the required or expected rate of return is 20%?
(3)The expected return for investment A is 10%, with a standard deviation of 1.2%. The expected return for investment B is 25%, with a standard deviation of 3%. Is B riskier than A? Answer "yes" or "no" AND then show your work and explain your answer.
Explanation / Answer
Answer 1 P = $150 D = $ 3 g = 4% Ke = ? P = D/Ke-g 150 = 3/Ke-0.04 Ke = 6% Required rate of return = 6% Answer 2 E (Rp) = 20% or 0.20 Rf = 4 % or 0.04 E (Rm) = 12% or 0.12 Beta = ? E(Rp) = Rf+B[E(Rm)-Rf) 0.20 = .04+B(0.12-.04) B = 2 Beta = 2 Answer 3 A B Expected Return 10% 25% Std Deviation 1.20% 3% Yes, "B" is riskier than "A". Becacuse its Stad. Deviation is more than the "A".
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