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Estimate the expected return based on the dividend valuation

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Reference no: EM133006953

Question - Ram's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Ram's stock most recent dividend was $5.50. The expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Ram's stock has a beta of 1.20.

Required -

(a) Estimate the expected return based on the dividend valuation model.

(b) Estimate the required rate of return using CAPM and Draw the security market line (SML).

(c) Would Ram's stock be a good investment at this time? Explain.

(d) State clearly any limitations and assumptions that you made in your calculations.

Reference no: EM133006953

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