Question: Data as given in the problem are shown below: Goodman Industries Landry Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2016
| Data as given in the problem are shown below: | |||||
| Goodman Industries | Landry Incorporated | Market Index | |||
| Year | Stock Price | Dividend | Stock Price | Dividend | Includes Divs. |
| 2016 | $25.88 | $1.73 | $73.13 | $4.50 | 17,495.97 |
| 2015 | $22.13 | $1.59 | $78.45 | $4.35 | 13,178.55 |
| 2014 | $24.75 | $1.50 | $73.13 | $4.13 | 13,019.97 |
| 2013 | $16.13 | $1.43 | $85.88 | $3.75 | 9,651.05 |
| 2012 | $17.06 | $1.35 | $90.00 | $3.38 | 8,403.42 |
| 2011 | $11.44 | $1.28 | $83.63 | $3.00 | 7,058.96 |
The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns. PLEASE SHOW FOMULAS IN EXCEL.
| Market risk premium (RPM) = | 5.000% | |||||
| Risk-free rate = | 6.040% | |||||
| Expected return on market = | Risk-free rate | + | Market risk premium | |||
| = | 6.040% | + | 5.000% | |||
| = | 11.040% | |||||
| Required return | = | Risk-free rate + | Market Risk Premium | x | Beta | |
| Goodman: | ||||||
| Required return | = | |||||
| = | ||||||
| Landry: | ||||||
| Required return | = | x | ||||
| = | ||||||
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