Answer Happy

A stock Q is expected to pay a dividend of $6.20 annually in perpetuity. The stock has a beta of 1.20, the risk-free rate is 4.0%, and the market risk premium is 7.5%. 4 pts a. What would you expect the current stock price of Q to be? b. Suppose there is another stock, G, that analysts also expect to pay a $6.20 dividend in perpetuity. Stock G has one-third more market risk than does stock Q (ie, stock G's beta is 1.60). Explain, briefly, why we know that the current price of G will be lower than the current price of Q c. Suppose there is another stock, J, that analysts also expect to pay a $6.20 dividend in perpetuity. Stock J has one-third less market risk than does stock Q. What would you expect the current price of J to be?