Why are the two costs of equity so different

Assignment Help Finance Basics

Reference no: EM13292884

A stock's last dividend was $0.80 and dividends grow at 5%; the stock's price is $61. In addition, the stock's beta is 1.50, the risk free rate is 5.5%, and the return on the market is 12%.

a. Calculate the cost of equity using the dividend growth model approach.

b. Calculate the cost of equity using the security market line (CAPM) approach.

c. Why are the two costs of equity so different?

d. Does this say anything about the stock's price?

Reference no: EM13292884

Questions Cloud

Evaluate a patients intake and expenditure : Evaluate a patient’s intake & expenditure. Determine energy balance. Evaluate factors that influence lifestyle behaviors. Provide recommendations that promote healthy lifestyle changes.

Design a non-inverting op-amp with a bandwidth : Design a non-inverting op-amp with a bandwidth of 20kHz whose open-loop gain is 100,000 and unity gain frequency of 1 MHz. Draw the Voltage Transfer Characteristic (VTC) of the designed op-amp if the power supply produces ±10V.

Dascribe what operation must be performed : Given the 16-bit value 1010 0101 1001 1000, what operation must be performed, and what operand is needed, in order to (a) set the most significant 8 bits to 1s (b) clear the bits in even positions (the left most bit is 15 andthe right most bit is 0) ..

Enzyme binds more tightly to the transition state : Prove the hypothesis: If the enzyme binds more tightly to the transition state than to the substrate, then the substrate will turn into the transition state more rapidly when it is bound to the enzyme than when it is not bound.

Why are the two costs of equity so different : A stock's last dividend was $0.80 and dividends grow at 5%; the stock's price is $61. In addition, the stock's beta is 1.50, the risk free rate is 5.5%, and the return on the market is 12%.

Which step of writing process are you currently working : Which step of the writing process are you currently working on? Describe your technique up to this point. What has worked well for you? What will you change while working on your next draft? Can we (your classmates and I) offer any assistance?

Explain convention of arbitrarily assigning a zero enthalpy : The convention of arbitrarily assigning a zero enthalpy value to all the most stable elements in the standards state and (usually) 298 K is a convenient way of dealing with the enthalpy changes of chemical processes.

What is the weight percent of cl : Calculate %wt of C, H, and O in the compound and find the empirical formula of this compound - What is the weight percent of Cl

For how long should she run in order to retrieve treasure : A contestant on "Survivor" is challenged to find buried treasure in a featureless desert. For how long should she run in order to retrieve the treasure

User Account

All Pages