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发表于 2011-7-11 17:40
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Risk Free Rate - Equity Investments
Can someone please help me understand this question - when you are calculating K, why do you just use 5% (risk free rate), I thought the formula for K was RFR + B(RFR - MR)
A stock has the following elements: last year’s dividend = $1, next year’s dividend is 10% higher, the price will be $25 at year-end, the risk-free rate is 5%, the market premium is 5%, and the stock’s beta is 1.2.
What will be the current price of the stock with a beta of 1.5?
A) $23.20.
B) $23.51.
C) $20.23.
The correct answer is A) $23.20.
k = 5 + 1.5(5) = 12.5%
P0 = (1.1 / 1.125) + (25 / 1.125) = $23.20 |
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