ECON 4410 Lecture Notes - Lecture 5: Dividend Discount Model, Capital Asset Pricing Model, Weighted Arithmetic Mean

71 views19 pages

Document Summary

13. 1 with the information given, we can find the cost of equity using the capm. 13. 2 with the information given, we can find the cost of equity using the dividend growth model. Using this rs = 0. 035 + 1. 21(0. 11 0. 035) = 0. 1258, or 12. 58% model, the cost of equity is: rs = [. 35(1. 05)/] + 0. 05 = 0. 0975 or 9. 75% 13. 3 we have the information available to calculate the cost of equity using the capm and the dividend growth model. Using the capm, we find: rs = 0. 05 + 0. 85(0. 08) = 0. 1180 or 11. 80% And using the dividend growth model, the cost of equity is rs = [. 60(1. 06)/] + 0. 06 = 0. 1058 or 10. 58% Both estimates of the cost of equity seem reasonable. Given this, we would use the average of the two, so: P0 = = r = 4. 282% rb = 2 4. 282% = 8. 56%

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents