25. The stock of Mosses, Inc., is expected to return 20% annually with a standar

Question

25. The stock of Mosses, Inc., is expected to return 20% annually with a standard deviation of 9%. The stock of Barney, Inc., is expected to return 13.2% annually with a standard deviation of 6%. The beta of the Mosses stock is 1.60, and the beta of the Barney stock is 1.1. The risk-free rate of return is expected to be 7%, but the return on the market portfolio is 13%.

Based on the Security Market Line (SML), what is the required rate of return for Mosses given the current market situation

26. Continued from Question 25, based on the Security Market Line (SML), what is the required rate of return for Barney given the current market situation?

27. Continued from Question 25 and Question 26, which one is a better buy in the current market?

28. Gillet Company pays an annual dividend of $2.70 per share, which is expected to remain constant for the foreseeable future. What is the value of Gillet's stock to an investor who requires a 7.5% percent rate of return?

27. Continued from Question 25 and Question 26, which one is a better buy in the current market?

28. Gillet Company pays an annual dividend of $2.70 per share, which is expected to remain constant for the foreseeable future. What is the value of Gillet's stock to an investor who requires a 7.5% percent rate of return?

Explanation / Answer

28) dividends are paid at the end of the year, then the stock pays a total of $2.7 in dividends per year. Valuing this dividend as a perpetuity,

we have, P $2.70 / 0.075= $36.

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