Return implied by the capital asset pricing model

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Reference no: EM131628484

The company's beta is 1.35, its dividend growth rate is 8.8%, just yesterday it paid a dividend of $1.75 , and today's shareprice is $34.00 . You believe that today's shareprice equals today's intrinsic value. Furthermore, you believe that the shareprice moves in accordance with the dividend constant growth model. The economy wide risk free interest rate is 4.5%, and the expected risk premium for the market portfolio is 9.5%. You believe that the stock represents a good investment if the expected total rate of return implied by the dividend constant growth model exceeds the required rate of return implied by the Capital Asset Pricing Model. Which of the following statements is most accurate?

a. The required return is 22.9% and the expected return is 11.1% so buy it

b. The required return is 19.9% and the expected return is 11.1% so buy it

c. The required return is 19.9% and the expected return is 14.4% so do not buy it

d. The required return is 17.3% and the expected return is 14.4% so do not buy it

e. The required return is 22.9% and the expected return is 14.4% so do not buy it

Reference no: EM131628484

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