kasinkei

Schweser solution: The required rate of return on Aceler shares is 4.5 + 0.9(7.5) = 11.25%. The dividend at t = 3, $2.00, is expected to grow at. 7% for the foreseeable future so the DDM value of Aceler shares at r = 2 is 2/(0.1125 - 0.07) = 47.06. The t 11. D = 0 value df rhe shares is (47.06 + 1.25)/1.1125 2 = $39.03.


Ke represents required rate of return. I would be investing in Treasury Securities not Aceler if i wanted RFR. Since i need a higher rate to part with my money which Ke represents, it becomes the discount rate.