Question 3 Not completeperiod Marked out of 1.00 P Flag questiorn Suppose a firm

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Question 3 Not completeperiod Marked out of 1.00 P Flag questiorn Suppose a firm pays a dividend on it's stock at the end of every period, the stock beta is 0.9, the firm just paid a dividend in the amount of $4.34, and dividends are expected to groW 3.1 percent every period forever. If the expected return on the market is 12.2 percent and the risk free rate is 2.3 percent, calculate the stock price based on the CAPM and constant growth stock valuation model. Answer Check Suppose that the stock described in the previous question sells for $56 00 per share in the market. Then this stock is Question 4 Not complete Marked out of 1.00 Ten percent of this question's point value may be deducted for each wrong answer submitted. Flag question Select one

Explanation / Answer

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

expected return = 2.3% + 0.9 * (12.2%-2.3%)

= 11.21%

price = dividend next year /(required rate of return - growth rate)

price = 4.34*(1+3.1%)/(11.21%-3.1%)

= 55.17

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