Answer:
Required rate of return= 16%
Stock price= $13.50
Explanation:
A share of BAC common stock just made a dividend payment of $1
Market return is 12%
Beta is 1.5
Risk-free rate is 4%
Growth rate is 8%
The required rate of return for the stock can be calculated as follows
Required rate of return= Risk-free rate+beta×(market rate-risk-free rate)
= 4%+1.5(12%-4%)
= 4%+1.5×8%
= 4%+12
= 16%
The stock price can be calculated as follows
Stock price= dividend for the year/(rate of return-growth rate)
= (1×1.08)/(16/100-8/100)
= 1.08/0.16-0.08
= 1.08/0.08
= $13.50
Hence the required rate of return and the stock price is 16% and $13.50 respectively.
Is there a set of answers that's suppose to go with this questions? If so, could you put them please?
I think a good situation would be when people would stop consuming pasta because they are currently planning to lose weight.
For restaurants that specialize in pasta would definitely be affected by the situation. They would definitely lower down the prices of their pasta specials. It would also affect the producers of pasta because of the decline of these restaurants. For the consumers' end, it would not affect them much because they can substitute pasta with another food which is healthier for them.
