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A stock has a beta of 95 and just paid a dividend of $140

Finance

A stock has a beta of 95 and just paid a dividend of $140. The expected return on the market is 9.7 percent and T-bills are yielding 1.9%. If the stock is trading at $28.50 and the annual growth in dividends is expected to be 3,15%, what is the cost of equity using the dividend growth model method? 901

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Year 1 dividend = 1.4 (1 + 3.15%) = 1.4441

Cost of equity = (Year 1 dividend / price) + growth rate

Cost of equity = (1.4441 / 28.5) + 0.0315

Cost of equity = 0.0822 or 8.22%