Explore BrainMass

Explore BrainMass

    Beta using the DDM and CAPM

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

    Cache creek manufacturing company is expected to pay a dividend of $4.20 in the upcoming year. Dividend are expected to grow at the rtate of 8% per year. The risk free rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock, and the constant growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $84.00. Using the constant growth DDM and the CAPM, the beta of the stock is

    a. 1.4
    b. 0.9
    c. 0.8
    d. 0.5

    Please explain your answer and show all steps to the solution

    © BrainMass Inc. brainmass.com June 3, 2020, 8:50 pm ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/beta-using-the-ddm-and-capm-155036

    Solution Preview

    D1 = 4.20
    g = 8%
    P = 84
    by DDM, the stock return rate is
    R = ...

    Solution Summary

    Cache creek manufacturing company is expected to pay a dividend of $4.20 in the upcoming year. Dividend are expected to grow at the rtate of 8% per year. The risk free rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock, and the constant growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $84.00. Using the constant growth DDM and the CAPM, the beta of the stock is

    $2.19

    ADVERTISEMENT