Answer Happy

Calvin received the following research report from an investment consultant. Unfortunately, the beta coefficient for HK Speed is not available. Beta Hang Seng Index (HSI) HK Speed Risk-free Rate Expected Return 10% n/a 5% Standard Deviation n/a 25% n/a n/a: data not available Recently, the Chairman of HK Speed has made the following announcement: “From now on, the dividend growth of the company will maintain at a constant rate of 5% per year indefinitely. We foresee the dividend for next year is $1.1 per share.” The closing stock price for HK Speed is $20 on that day. Required (Write the FM equations first in your answers): (a) Using the Dividend Growth Model (DGM), compute the total annual return of HK Speed? (b) Using the CAPM, find the beta coefficient of HK Speed? State any assumption(s) used.