Explain current long-term government bond yield

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1) A company's common shares are currently trading at $50. It is expected that the company will pay an annual common share dividend of $3.50 next year. It is also expected that the dividend will grow at a rate of 4% each year in perpetuity. Based on the constant growth dividend discount model, what is the companies cost of common equity?

2) Suppose the current long-term government bond yield is 1.65% and the estimated market risk premium is 5%. If the company's beta is 0.9, estimate its cost of equity.

Reference no: EM132847441

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