Sorbond Industries has a beta of 1.45. The risk-free rate is 8% and the expected return on the market portfolio is 13%. The company currently pays a dividend of $2 a share, and investors expect it to experience a growth in dividends of l0% per annum for many years to come’

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2.90K viewsJanuary 1, 2017

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Darshita 6.14K January 1, 2017 0 Comments

Sorbond Industries has a beta of 1.45. The risk-free rate is 8% and the expected

return on the market portfolio is 13%. The company currently pays a dividend of

$2 a share, and investors expect it to experience a growth in dividends of l0% per annum for many years to come’

b. What is the stock’s present market price per share, assuming this required return?

score 0 · Answer 1 · 2017-01-01T06:32:30+00:00

a.Required return = Rf + (Rm – Rf)β

= 0.08 + (0.13 – 0.08)1.45

= 15.25%

P0 = D1/(ke – g)

= 2(1.10)/(0.1525 – 0.10)

= $41.90

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