Answered: What equation was used to get this?…

What equation was used to get this? Common Stock Share price 65 Dividends 2.53 Growth rate 9% Riskfree Rate 7% Market Risk Premium

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 7P

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Question

What equation was used to get this?

Common Stock

Share price 65

Dividends 2.53

Growth rate 9%

Riskfree Rate 7%

Market Risk Premium 5.50%

Beta 1.2

Cost of common stock(using DGM) 13.24%

Cost of common stock(using CAPM) 13.60%

Cost of common Equity 13.42%

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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