Suppose abc inc stock is selling for 200 per share and it, Ask an Expert

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Suppose ABC Inc. stock is selling for $200 per share and it is “fairly” priced. It is expected to pay a dividend of $4 at the end of this year. For the next 14 years the dividend will grow at 20% per year. After that the growth rate will moderate to 6% per year. XYZ stock is twice as risky as ABC stock. Each XYZ Corp. share is expected to pay a dividend of $2 at the end of this year and the dividend is expected to grow at the rate of 8% per year for the forseeable future. The expected return on the market portfolio is 15% per year and the risk-free rate is 5% per year.

(a) What is the opportunity cost for ABC stock?

(b) What is ABC stock’s β ?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92838458

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