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Determine the required rate of return for the stock

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Reference no: EM133050974

Question - The stock KZ has an equity beta of 1.8. The market risk premium is 5% and the current risk-free rate is 3%. The company is going to pay the following dividends for the next 4 years: $12 for year 1, $9 for year 2, $6 for year 3 and $2 for year 4. Afterwards, it would maintain a 5% growth rate in dividends forever.

(a) Determine the required rate of return for the stock.

(b) Compute the maximum price you would pay for this stock today.

Reference no: EM133050974

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