For each of the following questions you should assume that the expected return on the market...

  

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For each of the following questions you should assume that the expected return on the market is 6% per year, and the risk-free rate is 2% a year, and that the CAPM holds. Also assume dividends are given out yearly. Dividend Today Annual Dividend Growth Rate 3% 1.9% Firm Beta A 1.2 $5 B 0.8 $10 Find the cost of capital for Firm A and Firm B. Find the value of one share of Firm A and one share of Firm B. Hint 1: The Gordon Growth Model begins with the dividend ONE PERIOD after today. Hint 2: Draw a timeline. If firm B grows as you anticipate, and that the market has correctly anticipated firm B's growth, what return do you expect to earn from an investment in firm B over the next year? Assume that you measure the return from today until the point just after the next dividend is paid. gains? How much of this return will come from dividend yield and how much from capital For each of the following questions you should assume that the expected return on the market is 6% per year, and the risk-free rate is 2% a year, and that the CAPM holds. Also assume dividends are given out yearly. Dividend Today Annual Dividend Growth Rate 3% 1.9% Firm Beta A 1.2 $5 B 0.8 $10 Find the cost of capital for Firm A and Firm B. Find the value of one share of Firm A and one share of Firm B. Hint 1: The Gordon Growth Model begins with the dividend ONE PERIOD after today. Hint 2: Draw a timeline. If firm B grows as you anticipate, and that the market has correctly anticipated firm B's growth, what return do you expect to earn from an investment in firm B over the next year? Assume that you measure the return from today until the point just after the next dividend is paid. gains? How much of this return will come from dividend yield and how much from capital