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Homework answers / question archive / 1-a) Compute the expected rate of return for intel common stock, which has a 1
1-a) Compute the expected rate of return for intel common stock, which has a 1.2 beta. The risk free rate is 5% snd the market portfolio has an expected return of 12%.
b) Why is the rate you computed the expected return?
2) The next year the common stock of Gold Corp. will pay a dividend of $3.39 per share. If the company is growing at a rate of 2.85 percent per year, and your required rate of return is 11.36 percent, what is Gold's company stock worth to you?
Round the answer to two decimal places.
1-a) Computation of the expected rate of return:-
Expected rate of return = Risk free rate + Beta * (Expected market return - Risk free rate)
= 5% + 1.2 * (12% - 5%)
= 5% + (1.2 * 7%)
= 5% + 8.4%
= 13.4%
b) The 13.4% fair rate compensates the investor for the time value of money and for assuming risk.
2) Computation of the stock price:-
Stock price = D1 / (Required return - Growth rate)
= $3.39 / (11.36% - 2.85%)
= $3.39 / 8.51%
= $39.84
