What is the risk premium on giant stock

Reference no: EM131113044

Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2006-2012 period, when the following dividends were paid:

Year Dividend per share

2012 ........ $2.45

2011 ........ 2.28

2010 ........ 2.10

2009 ........ 1.95

2008 ........ 1.82

2007 ........ 1.80

2006 ........ 1.73

a. If the risk-free rate is 10%, what is the risk premium on Giant's stock?

b. Using the constant-growth model, estimate the value of Giant's stock.

c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock.

Reference no: EM131113044

Questions Cloud

Analyze role of professional regulation and standard of care : Analyze the role of professional regulation, the standard of care, and codes of ethics in healthcare providers' accountability to self, their profession, their patients, and the public.

Estimate of market value of firm : A. What is your estimate of the value for 1 share of the firm's stock? B. What is your estimate of the market value of the firm? Show work please

Concept of opportunity costs : Utilizing the concept of opportunity costs, why would the latter product management team be less than receptive to the all-day breakfast menu?

Find the time taken by each object to reach the ground : Find the time taken by each object to reach the ground.

What is the risk premium on giant stock : If the risk-free rate is 10%, what is the risk premium on Giant's stock? Using the constant-growth model, estimate the value of Giant's stock. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock.

Prepare the journal entry for wood to record the sale : Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse.

What is the purpose of financial statement : Who are the primary users of this statement, and how is it generally used - What GAAP (Generally Accepted Accounting Principles) are employed in its construction?

Calculate the true stress when the true strain is 0.05 cm/cm : Calculate the true stress when the true strain is 0.05 cm/cm.

Design of databases and data warehouses : For which tasks, or situations, might they best be applied? Do you think that AI systems will someday play a greater role in the design of databases and data warehouses? Why or why not?

User Account

All Pages