What is tesla stock expected return

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Assume that the CAPM holds. The risk free rate is 5%, the expectation of the market return is 12% and the standard deviation of the market return is 34%. Now, consider Tesla's stock. The standard deviation of Tesla stock returns is 68% and Tesla stock returns' correlation with the market returns is 0.8. Assume Tesla's dividends grow at a constant rate g and they can be discounted using the CAPM expected return, i.e., you can use a constant discount rate given by the stock's expected return.

1) What is Tesla stock's expected return?

2) Derive the current price of Tesla's stock P0 as a function of next year's dividend D1, the expected return E[R] and growth rate g.

Reference no: EM133076327

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