Expected return on the market using the capm model

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1. CAPM is one of the more popular models for determining the risk premium on a stock. If the Expected Return on the Stock is 20.38 percent, the Risk-Free Rate is 9.0 percent, and the Beta for Stock i is 1.75. Find the Expected Return on the market using the CAPM model. Show your work.

2. XYZ company paid a dividend of $1.25 during the past 12 months. The expected growth rate is 7 percent, and the required rate of return is 9.5 precent based on the cost of capital. Calculate the current price of the stock. Do not use a financial calculator or an online calculator. You must show your work.

3. Company XYZ is expected to grow at 15% annually forever, and its dividend in the next 12 months is expected to be $1.50, and its required rate of return is 19.5%.
a. What is its intrinsic value?
b. If the current price is equal to its intrinsic value, what is next year's expected price?
c. Assume you buy the stock now and sell it after receiving the $1.50 dividend one year from now. What would be your anticipated capital gain in percentage terms?
What is the dividend yield and the holding period return?

Reference no: EM13530630

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