Problem 1 Disney (DIS) will pay a dividend next year of $1 76 After that, you believe that the dividend will grow 4 per year forever (Yes Mickey Mouse will never die ) You wish to earn a 7 return on your investments in the stock market What is the most you would pay for a share of DIS stock What are DIS shares trading for now What rate of return would you need to settle for if you bought DIS at this price Problem 2 Use the CAPM to determine the appropriate discount rate for DIS stock Look up the 10 year bond YTM rate and Beta on Yahoo Finance, and assume that, on average, investors expect a return of 5 from the stock market Carry out the result to 2 decimal places

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Question: Problem 1 Disney (DIS) will pay a dividend next year of $1.76. After that, you believe that the dividend will grow 4% per year forever

Problem 1

Disney (DIS) will pay a dividend next year of $1.76. After that, you believe that the dividend will grow 4% per year forever (Yes! Mickey Mouse will never die.) You wish to earn a 7% return on your investments in the stock market.

What is the most you would pay for a share of DIS stock?
What are DIS shares trading for now?
What rate of return would you need to settle for if you bought DIS at this price?

Problem #2

Use the CAPM to determine the appropriate discount rate for DIS stock. Look up the 10-year bond YTM rate and Beta on Yahoo Finance, and assume that, on average, investors expect a return of 5% from the stock market. Carry out the result to 2 decimal places:

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