Essay
Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely.In addition,Tangshan China's most recent dividend was $5.50.The expected risk free rate of return is 3 percent,the expected market return is 8 percent,and Tangshan has a beta of 1.20.
(a)Based on the dividend valuation model,what return do investors expect to earn in the future?
(b)What is the expected return based on the CAPM?
(c)Would Tangshan China be a good investment at this time? Explain
Correct Answer:
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(a)rs = [$5.50(1.05)]/$160.00 + 0.05 = 8....View Answer
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