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[answered] Assume the risk-free rate is 6% and the market risk premium


Q2. Assume the risk-free rate is 6% and the market risk premium is 6%. The stock of physicians care network (PCN) has a beta of 1.5. The last dividend paid by PCN (D0) was $2 per share.

What?would?PCN?stock?value?be?if?the??dividend?were?expected?to?grow?at?a?constant?(3points)-5%?0%?5%?10%?What would be the stock value if the growth rate were 10% but PCN beta fell to (3 points)

1.0?

0.5?


Value of stock = Dividend (1+growth rate)/(required rate of return - growth rate)

 

Value of stock = 2(1+(-0.05))

 

(0.15 - (-0.05)) = 1.9 =

 

0.2 $ 9.50 Value of stock = 2(1+0.00)

 

(0.15 - 0.00) = 2=...

 


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