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Assume the risk-free rate is 6 percent and the market risk premium is 6 percent. The stock ofCigna (CI) has a beta of 1.5. The last dividend paid by Cigna (D0) was $2 per share.
a. What would Cigna's stock value be if the dividend was expected to grow at a constant -5 percent? 0 percent? 5 percent? 10 percent?
b. What would be the stock value if the growth rate is 10 percent, but Cigna's beta falls to 1.0? 0.5?
PROBLEM 2
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