Why are the two costs of equity so different

Reference no: EM13292884

A stock's last dividend was $0.80 and dividends grow at 5%; the stock's price is $61. In addition, the stock's beta is 1.50, the risk free rate is 5.5%, and the return on the market is 12%.

a. Calculate the cost of equity using the dividend growth model approach.

b. Calculate the cost of equity using the security market line (CAPM) approach.

c. Why are the two costs of equity so different?

d. Does this say anything about the stock's price?

Reference no: EM13292884

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