Question

please show work A.The risk-free rate of interest is 2 percent and the expected return on...

please show work

A.The risk-free rate of interest is 2 percent and the expected return on the market is 9 percent. Elysian Incorporated has a beta of 1.3, is expected to pay an annual dividend of $0.80 next year while experiencing a 10 percent growth rate, and is selling in the market for $20 per share. What is the stock’s equilibrium required rate of return? 11.1%

B. Determine whether Elysian is under, over, or correctly valued, and illustrate with a correctly labeled graph. undervalued

Homework Answers

Answer #1

A. The stock's equilibrium rate of return is found by using CAPM

B. Constant growth dividend discount model

Since the stock is returning more than what the CAPM suggests, it is undervalued.

See the image for the graph.

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