Question: Assume a major investment service has just given Oasis Electronics
Assume a major investment service has just given Oasis Electronics its highest investment rating, along with a strong buy recommendation. As a result, you decide to take a look for yourself and to place a value on the company’s stock. Here’s what you find: This year Oasis paid its stockholders an annual dividend of $3 a share, but because of its high rate of growth in earnings, its dividends are expected to grow at the rate of 12% a year for the next 4 years and then to level out at 9% a year. So far, you’ve learned that the stock has a beta of 1.80, the risk-free rate of return is 6%, and the expected return on the market is 11%. Using the CAPM to find the required rate of return, put a value on this stock.
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