What is the required return on this stock hint use capm


Given the following information:

  • Current stock price $35
  • Stock beta: 2
  • Risk-free rate: 4%
  • Market risk premium: 6%
  • Expected dividend, D1: $3.00
  • Expected long-run growth rate of dividends: 6%
  1. What is the required return on this stock? (hint: use CAPM)
  2. What is the expected return on this stock, given its current price?
  3. What is the fair price of the stock?
  4. Is this stock fairly valued, overvalued, or undervalued?
  5. Suppose after one year the dividend is $2.50 and the price is $29.00.  What is the rate of return on an investment in this stock?

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Finance Basics: What is the required return on this stock hint use capm
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