You want to buy-Burrito Inc. stock. They pay annual dividends, with the next dividend of $0.45 per sharebeing paid later today. You believe that, during the next 10 years, their annual dividends will grow by 45% APR, compounded annually. But after 10 years, their annual dividends will grow more slowly... only at 4% APR, compounded annually. 1 Burrito Inc. has a beta of 1.78. The risk-free rate ofreturn is 3%, and the average risk premium is 6%. What should be the price ofa share of Burrito stock? (You can assume that the return given by the CAPM is compounded annually).
You want to buy-Burrito Inc. stock. They pay annual dividends, with the next dividend of $0.45 per sharebeing paid later today. You believe that, during the next 10 years, their annual dividends will grow by 45% APR, compounded annually. But after 10 years, their annual dividends will grow more slowly... only at 4% APR, compounded annually. 1 Burrito Inc. has a beta of 1.78. The risk-free rate ofreturn is 3%, and the average risk premium is 6%. What should be the price ofa share of Burrito stock? (You can assume that the return given by the CAPM is compounded annually).
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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Transcribed Image Text:You want to buy-Burrito Inc. stock. They pay annual dividends, with the next dividend of
$0.45 per sharebeing paid later today. You believe that, during the next 10 years, their annual
dividends will grow by 45% APR, compounded annually. But after 10 years, their annual
dividends will grow more slowly... only at 4% APR, compounded annually.
1
Burrito Inc. has a beta of 1.78. The risk-free rate ofreturn is 3%, and the average risk
premium is 6%. What should be the price ofa share of Burrito stock? (You can assume that
the return given by the CAPM is compounded annually).
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