Should you buy or sell this stock

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A stock is expected to have a dividend next year of $2 per share. Then, dividends are expected to grow at a rate of 10% per year for another 2 years. Then growth will slow down to an industry average of 5% forever. Based on past returns, this stock has a correlation of 0.6 with returns to the overall market. The overall market has a standard deviation of 0.15 while the stock has a standard deviation of 0.35. Historically, the market has returned 8.5% more than T-bills in an average year. The current yield on T-bills is 4.5%. Right now, the stock is quoted at $30 in the market, should you buy or sell this stock? Show your work.

Reference no: EM13274006

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