Suppose the market risk premium is 5%; the beta of stock S is 3; the dividend at

Question

Suppose the market risk premium is 5%; the beta of stock S is 3; the dividend at period of 0 (Do) is $4.0; the growth rate of dividend is 5%; rate of return on Treasury bills is 3.4%; and the actual current price of the stock is $31. Compute the required rate of return (rs) and expected (^rs). Answer: The required rate of return (rs) is ________________and the expected rate of return (^rs) is )_____________ Is the stock market in equilibrium a) Yes b) No Answer ______________ the reason is __________________ Do you want to buy or sell this stock? What is the reason? Answer I want to___________________. The reason is__________________________ computer the intrinsic value of the stock S. Answer: The instrinsic value of the stock is ______________________________

Explanation / Answer

expected rate of return= 3.4+(5x3)= 18.4% Answer required rate of return 31= 4x1.05/(Ke-.05) Ke= 18.55% Answer yes.

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