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Determining the required rate of return

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A. Burg Inc. has just paid a dividend of $2.00. Its stock is now selling for $48 per share. The firm is half as risky as the market. The expected return on the market is 14 percent, and the yield on U.S. Treasury bonds is 11 percent. If the market is in equilibrium, what growth rate is expected?

B. Rescue Production's projected dividends are as follows:

Year                        Projected dividend

1                                  $0.20

2                                  $0.30

3                                   $0.40

Beginning in the fourth year, the dividend will grow at an 8 percent rate indefinitely. The required rate of return (discount rate) is 15 percent.

Reference no: EM131873868

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