Question
In: Finance
ABZ Corp. just paid a dividend of $1.00 per share. The dividend is expected to grow...
ABZ Corp. just paid a dividend of $1.00 per share. The dividend is expected to grow 6% per year in perpetuity. The stock's beta is 0.85. The risk-free rate is 3%, and the market risk premium is 7%. The current stock price is $37 per share. Assume that one year from now the stock will be correctly valued.
What are the dividend yield, capital gain yield and expected return for the coming year?
Draw the Security Market Line and plot the stock on it. Be sure to label relevant points.
Solutions
Expert Solution
Calculations are done by using the following formulas:
Dividend Yield = (DPS / MPS)*100
Expected Return (ke) = Rf + Beta * RPm
Original Market Price (Po) = D1 / (Ke - g)
Capital Gain Yield = (P1 - P0) / P0
Security Market Line (SML) is a graphical representation which shows the risk as against the expected return.
jeff jeffy answered 2 years agoRelated Solutions
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Multiple Choice
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