Clearview Productions is a publicly held company whose common stock has recently been selling for $ 50.00 a share. The firm is expected to pay an annual cash dividend of $ 5.00 a share next year, and the firm’s investors anticipate an annual rate of return of 15%.
a. If the firm is expected to provide a constant annual rate of growth in dividends, what is that growth rate?
b. If the risk- free rate of interest is 3% and the market risk premium is 6%, what must the firm’s beta be to warrant a 15% expected rate of return on the firm’s stock?