Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The dividend-growth model may be used to value a stock:
Round your answers to the nearest cent.
- What is the value of a stock if:
D0 = $5.00
k = 12%
g = 6%
$
- What is the value of this stock if the dividend is increased to $6.50 and the other variables remain constant?
$
- What is the value of this stock if the required return declines to 11 percent and the other variables remain constant?
$
- What is the value of this stock if the growth rate declines to 3 percent and the other variables remain constant?
$
- What is the value of this stock if the dividend is increased to $6.50, the growth rate declines to 3 percent, and the required return remains 12 percent?
$
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