Question: Data: Risk & Return: Q =1.25 ; r f =2% ; and R M =12% . Cash Flows: g=5% and is constant; the last dividend

Data:

Risk & Return: Q=1.25; rf=2%; and RM=12%.

Cash Flows: g=5% and is constant; the last dividend paid was D0=$2.00

1. If the current price of stock Q is P0=$22.105 find the actual rate of return on stock Q. Note: Q is a constant growth stock.

2. Find the equilibrium rate of return for stock Q.

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