Explore BrainMass

Explore BrainMass

    Assume that company A has a beta coefficient of 1.2, that the risk free rate is 7.0 % and that the market risk premium is 5 percent. What is the required rate of return on the firm's stock?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Hi,
    THese are pretty basic problems just need some guidance! Thanks!

    1. Assume that company A has a beta coefficient of 1.2, that the risk free rate is 7.0 % and that the market risk premium is 5 percent. What is the required rate of return on the firm's stock?

    2. Assume that company A is a constant growth company whose last dividend which was paid yesterday as $2.00 and whose dividend is expected to grow indefinitely at a 6% rate.

    What is the firm's expected dividend stream over the next 3 years?
    What is the firm's current stock price?
    What is the stock's expected value 1 year from now?
    What are the expected dividend yield, the capital gains yield and the total return during the 1st year?

    © BrainMass Inc. brainmass.com June 3, 2020, 5:55 pm ad1c9bdddf
    https://brainmass.com/business/beta-and-required-return-of-a-project/42432

    Solution Preview

    1.Assume that company A has a beta coefficient of 1.2, that the risk free rate is 7.0 % and that the market risk premium is 5 percent. What is the required rate of return on the firm's stock?
    By CAPM, we know:
    Rr = Rf + Beta * Risk Premium = 7% + 1.2*5% = 13%

    2. Assume that ...

    Solution Summary

    You will find the answers to these puzzling questions inside...

    $2.19

    ADVERTISEMENT