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Question 5Stock XYZ has stock price of $21, dividends of $1 per share, and beta of 1.25. The riskfree rate is 2% and the market risk premium is 4%. Analysts predict that XYZ’s growthrate will be 5% per year, forever. What is the stock’s alpha?a. 1%b. 2%c. 3%d. 4%e. Impossible to tell

Question 5Stock XYZ has stock price of $21, dividends of $1 per share, and beta of 1.25. The riskfree rate is 2% and the market risk premium is 4%. Analysts predict that XYZ’s growthrate will be 5% per year, forever. What is the stock’s alpha?a. 1%b. 2%c. 3%d. 4%e. Impossible to tell

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 26P
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Question 5
Stock XYZ has stock price of $21, dividends of $1 per share, and beta of 1.25. The riskfree rate is 2% and the market risk premium is 4%. Analysts predict that XYZ’s growth
rate will be 5% per year, forever. What is the stock’s alpha?
a. 1%
b. 2%
c. 3%
d. 4%
e. Impossible to tell

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