Explore BrainMass
Share

Beta using the DDM and CAPM

This content was STOLEN 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 October 15, 2018, 7:31 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