The risk-free rate of return is 5%, the required rate of return on the market is

Question

The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.8. If the dividend per share expected during the coming year, D1, is $2.80 and g = 6%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.8. If the dividend per share expected during the coming year, D1, is $2.80 and g = 6%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Dividend after growth = $ 2.80 X 106% = $ 2.97

Rate of return on capital = (10% - 5%) X 1.8 = 9%.

Hence, the share price will be $ 2.97 / 9% = $ 32.98.

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