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What is the correlation coefficient between returns

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Question - You are considering investing in Microsoft stock. From Bloomberg, you download information on its beta coefficient, which is equal to 2. The risk free rate is currently 2% and the return on the S&P 500 index (which you use as a proxy for the market portfolio) is 15%. You estimate that Microsoft's dividends are expected to grow at 5% per year.

Required -

a. What is the return on equity for Microsoft?

b. If the standard deviation of returns on Microsoft is 40% per annum and the standard deviation of the S&P 500 is 20%, what is the correlation coefficient between returns on Microsoft and returns on S&P 500 index?

c. What price should you pay for this stock, if it just paid $2 per share dividend?

Reference no: EM133035221

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