The beta for the DAK Corporation is 1.29. If the yield on 30-year T-bonds is 5% (risk-free rate), and the long-term average return on the S&P 500 is 12%. The DAK Corporation is expecting dividends to grow at a 20% rate for the next two years. The corporation just paid a $2 dividend, and the next dividend will be paid one year from now. After two years of rapid growth, dividends are expected to grow at a constant rate of 9% forever. (1) Calculate the required rate of return for DAK corporation.< (2) what is the value of the DAK Corporation common stock today? (3) If you observe that the stock price of DAK is currently at $80. Should you buy or sell the stock ? <

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Q3:
The beta for the DAK Corporation is 1.29. If the yield on 30-year T-bonds is 5% (risk-free rate), and the
long-term average return on the S&P 500 is 12%. The DAK Corporation is expecting dividends to grow
at a 20% rate for the next two years. The corporation just paid a $2 dividend, and the next dividend will
be paid one year from now. After two years of rapid growth, dividends are expected to grow at a
constant rate of 9% forever.
(1) Calculate the required rate of return for DAK corporation.<
(2) what is the value of the DAK Corporation common stock today?
(3) If you observe that the stock price of DAK is currently at $80. Should you buy or sell the stock ? <
Transcribed Image Text:Q3: The beta for the DAK Corporation is 1.29. If the yield on 30-year T-bonds is 5% (risk-free rate), and the long-term average return on the S&P 500 is 12%. The DAK Corporation is expecting dividends to grow at a 20% rate for the next two years. The corporation just paid a $2 dividend, and the next dividend will be paid one year from now. After two years of rapid growth, dividends are expected to grow at a constant rate of 9% forever. (1) Calculate the required rate of return for DAK corporation.< (2) what is the value of the DAK Corporation common stock today? (3) If you observe that the stock price of DAK is currently at $80. Should you buy or sell the stock ? <
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