Reference no: EM132813673
Question - AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities:
-Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25%.
-Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5%.
-Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors.
-Diversified investors in the market is currently demanding a 2.0% premium over government securities.
The following are the current instruments issued by AlphaGet:
-Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 9.0%
-Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 8.5%
-Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 10.0%AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five.
Required - What is the equity risk premium of AlphaGet?
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