Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8%. Given the risk level what is the one year required rate of return (we will call this k)? If next year’s expected dividend is $3, use k from part A to solve for the expected next year’s price

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 22P
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Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8%.

Given the risk level what is the one year required rate of return (we will call this k)?

If next year’s expected dividend is $3, use k from part A to solve for the expected next year’s price.

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