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What is the risk premium on Giant stock

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Reference no: EM132923115

Question - Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividnd 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 2.1

2009 1.95

2008 1.82

2007 1.8

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: EM132923115

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