Decrease in beta would have on the value of giant stock

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Giant Enterprise has a beta of 1.20, the risk-free rate of return is currently 10%, and the market return is 14%. The company which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rare consistent with that experienced over the 2003-2009 period, when the following dividends were paid:

Year.......... Dividend per share

2009 ............ $2.45

2008 ............ 2.28

2007 ............ 240

2006 ............ 1.95

2005 ............. 1.82

2004 ............. 1.80

2003 ............. 1.73

a. Use the capital asset pricing model (CAPM) to determine the required return on Giant's stock.

b. Using the constant-growth model and your finding in part a, estimate the value of Giant's stock.

c. Explain what effect, if any, a decrease in beta would have on the value of Giant's stock.

Reference no: EM131131797

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