You have the following information for the company Exxon. The “beta” coefficient for Exxon is .85 based on the past information. The 3-year average of 30-day T-bill rate is 2%, the average market return of (say, S&P 500 index) in the same period is 16%. Answer the following questions:

a) What is the required return for Exxon? Why do we call it “required” return?

b) Suppose that Exxon’s current dividend is $.60 per share with possible expected growth rate as 4% per year from now on, what is your assessment for the value of Exxon’s stock?

Answer rating: 100% (QA)

a The required return for Exxon can be calculated using the Capital Asset Pricing M... View the full answer