The stock KZ has an equity beta of 1.8. The market risk premium is 5% and...
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The stock KZ has an equity beta of 1.8. The market risk premium is 5% and the current risk-free rate is 3%. The company is going to pay the following dividends for the next 4 years: $12 for year 1, $9 for year 2, $6 for year 3 and $2 for year 4. Afterwards, it would maintain a 5% growth rate in dividends forever. (a) Determine the required rate of return for the stock. (b) Compute the maximum price you would pay for this stock today. (3 marks) (10 marks) The stock KZ has an equity beta of 1.8. The market risk premium is 5% and the current risk-free rate is 3%. The company is going to pay the following dividends for the next 4 years: $12 for year 1, $9 for year 2, $6 for year 3 and $2 for year 4. Afterwards, it would maintain a 5% growth rate in dividends forever. (a) Determine the required rate of return for the stock. (b) Compute the maximum price you would pay for this stock today. (3 marks) (10 marks)
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Answer rating: 100% (QA)
To determine the required rate of return for the stock KZ in part a you can use the Capital Asset Pr... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0133400694
1st canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford, David A. Stangeland, Andras Marosi
Posted Date:
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