(1) Part A: A common stock offers dividend of $2 next period and its price is $30 next period. Suppose that the covarian

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answerhappygod
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(1) Part A: A common stock offers dividend of $2 next period and its price is $30 next period. Suppose that the covarian

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(1)
Part A: A common stock offers dividend of $2 next period and its
price is $30 next period. Suppose that the covariance of this stock
and market is 24, market average return is 18% and market standard
deviation is 4%, and the risk-free interest rate is 5%. What is
proper discount rate for this stock? What is the value of this
stock today?
Part B: Now assume that investors will hold this stock into the
indefinite future. The growth rate of dividends is 8%.
Stockholders’ desired discount rate is 15%. What is the implied
fair price of this stock?
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