Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the...

Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $44. The stock will pay a dividend at year-end of $2.00. Assume

Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $44. The stock will pay a dividend at year-end of $2.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.9%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2013 (figures in percent per year) are as follows.

Portfolio   Average Annual
Rate of Return
  Average Premium (Extra return
versus Treasury bills)
 
Treasury bills   3.9      
Treasury bonds   5.2   1.3  
Common stocks   11.5   7.6  

 

What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.

Discount rate %

What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock price $

Jun 22 2021 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions