Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 32% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = o. The company's last dividend, Do, was $1.30, its beta is 1.80, the market risk premium is 5.50%, and the risk-free rate is 2.50%. What is the current price of the common stock? Do not round intermediate calculations. Oa. $27.84 Ob. $28.82 O c. $31.29 O d. $26.78 Oe. $29.14

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.