The stock of the Delta Corporation has a beta of 1.9. The stock recently paid an annual dividend of $1.60, and dividends are expected to grow at a rate of 10% indefinitely. The equity premium has averaged 8% in recent years, and it is expected to remain at this level for the foreseeable future. The relevant risk-free rate is 5%. What is the maximum price you should pay for a share of the Delta Corporation, according to CAPM?

(A) $15.69

(B) $32.00

(C) $17.25

(D) none of the above

Answer rating: 100% (QA)

The maximum price is computed as shown below The required re... View the full answer