Sunny corp required rate of return

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Sunny Corp has an estimated beta of 1.2. The Australian Govt 10-year bond is yielding 2.1% p.a., and the estimated market risk premium is 5% p.a. The latest annual dividend of $1.25 a share was paid yesterday and maintained its historic 7 percent annual rate of growth. You plan to purchase the stock today because you believe that the dividend growth rate will increase to 8 percent p.a. for the next two years and the selling price of the stock will be $32 per share at the end of that time.

Estimate

(a) Sunny Corp's required rate of return; and

(b) Sunny Corp's stock value.

[Remember to quote "Formula number #" and show your workings by typing in the variable/number that matches the formula]

Reference no: EM133074165

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