The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are
Question:
The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are trying to value ABC company and it has an equity beta of .9. The company earned $2.50 in the year that just ended. You expect the company's earnings to grow 4 percent per year. The company has an ROE of 12 percent.
a. What is the value of the stock?
b. What is the present value of the growth opportunity?
Step by Step Answer:
RFR 3 Market risk premium 5 Equity beta 9 Earnings per share 250 Growth rate 4 R...View the full answer
Investment Analysis and Portfolio Management
ISBN: 978-1305262997
11th Edition
Authors: Frank K. Reilly, Keith C. Brown, Sanford J. Leeds
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