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Homework answers / question archive / You have just done a regression of monthly stock returns of Royal Inc
You have just done a regression of monthly stock returns of Royal Inc., on monthly market returns over the past five years and have come up with the following regression:" =0.03+1.4× +The variance of the stock is 50%, and the variance of the market is 20%. The current risk-free rate is 3% (it was 5% one year ago) and the market risk premium is 8.76%. The stock is currently selling for $50, down $4 over the past year; it has paid a dividend of $2 during the past year and expects to pay a dividend of $2.50 over the next year. Royal Inc. has a tax rate of 40%. Estimate the expected return on the stock.
What would you have expected for Royal Inc. return over the past year.
A. % 19.41
B. % 18.12
C. % 17.26
D. % 15.51