Company A just paid dividends of $5 per share. Company A will increase its dividends by 5% every year forever. Company A pays dividends once per year, at the end of the year. The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15. The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%. Bond yield for government bonds is 5%. According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate, What should be Company A’s share price?
Company A just paid dividends of $5 per share. Company A will increase its dividends by 5% every year forever. Company A pays dividends once per year, at the end of the year. The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15. The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%. Bond yield for government bonds is 5%. According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate, What should be Company A’s share price?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Company A just paid dividends of $5 per share.
Company A will increase its dividends by 5% every year forever.
Company A pays dividends once per year, at the end of the year.
The standard deviation for Company A’s stock returns is 35% and its covariance with the market is 0.15.
The expected return on the market portfolio is 25%, and the standard deviation of the market portfolio is 35%.
Bond yield for government bonds is 5%.
According to dividend discount model and the capital asset pricing model to estimate the appropriate discount rate,
What should be Company A’s share price?
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