Your company is listed in stock market. The common stock of the company is priced now €20. Analysts estimates 0,9 the beta of company. The last dividend paid is €1,8 per share. The financial director anticipates that the future dividends will grow at an annual rate (g= 2%) 

 

The risk-free rate of interest is currently 1%, and the average required return on the stock market is 12% 

 

1. Estimate required return the stock using CAPM model

2. Estimate the expected return of the stock using dividend-based model 

3. Explain advantages and weaknesses (minimum 2) of CAPM model

4. Explain advantages and weaknesses (minimum 2) of dividend model 

5. Explain the differences between results in question.

6. Explain the differences between the required return for the shareholder and cost of shares for the company.

Answer rating: 100% (QA)

Using the CAPM model the required return on the stock can be estimated as follows Required return Riskfree rate BetaMarket return Riskfree rate Requir... View the full answer