Westlake Company's stock has an estimated beta of 1.5 and the company justpaid a dividend of $2 per share. Westlake is expected to grow its dividends at 5%p.a. indefinitely. The risk-free interest rate is 4% per annum, and the estimatedmarket risk premium is 6%.1. Use the CAPM to calculate Westlake' required rate of return.2. Estimate Westlake's intrinsic value per share.

. Westlake's Required Rate of Return using CAPMWe can use the Capital Asset Pricing Model (CAPM) to…

Answered: Westlake Company's stock has an…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Jersey Jewel Mining has a beta coefficient of 1.1. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.40 dividend that is growing at 4 percent annually. Do not round intermediate calculations. a. What is the required return for JJM? Round your answer to two decimal places. % b. Given the required return, what is the value of the stock? Round your answer to the nearest cent. $ c. If the stock is selling for $138, what should you do? The stock -Select- overvalued and -Select- ✓ be purchased. d. If the beta coefficient declines to 0.9, what is the new value of the stock? Round your answer to the nearest cent. $ e. If the price remains $138, what course of action should you take given the valuation in d? The stock is -Select- and -Select- ✓ be purchased.
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Company Z is expected to pay a dividend of D1 = $2.20 per share at the end of the year, and that dividend is expected to grow at a constant rate of 4.00% per year in the future. The company's beta is 1.3, the Market Risk Premium is 6.00%, and the risk-free rate is 3.00%. What is the company's current stock price? Group of answer choices 32.35 35.59 27.50 36.67 55.00

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