Scribd Logo
Upload

Welcome to Scribd!

  • 764 views

    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Uploaded by

    Noman Khosa
    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Uploaded by

    Noman Khosa
    764 views1 page
    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    764 views1 page

    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Uploaded by

    Noman Khosa
    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is the expected growth rate of Chicago?

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Question:

    Chicago Corp stock will pay a dividend of $1.32 next year. Its current price is $24.625 per share. The beta
    for the stock is 1.35 and the expected return on the market is 13.5%. If the riskless rate is 8.2%, what is
    the expected growth rate of Chicago?

    Solution:
    Using the capital asset pricing model (CAPM),

    E( Ri ) = r + βi (E (Rm ) – r)
    We first find the expected rate of return as

    E( Ri ) = 0.082 + 1.35[0.135 − 0.082]

    = 0.082 + 1.35(0.053)

    = 0.082 + 0.07155

    = 0.082 + 0.07155

    = 0.15355 = R

    The expected rate of return E(Ri), for a security is also its required rate of return R by the
    investors. Using the growth model for a stock, equation

    D1
    po = R−g

    We get

    R – g = D1/ Po

    Or

    g = R – D1/Po
    𝟏. 𝟑𝟐
    𝐠 = 𝟎. 𝟏𝟓𝟑𝟓𝟓 −
    𝟐𝟒. 𝟔𝟐𝟓
    𝐠 = 𝟎. 𝟏 Thus the rate of growth is 10%.

    You might also like