Asked by
Aurora Valle
on Oct 19, 2024
Verified
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of 0.5. Using the constant-growth DDM, the intrinsic value of the stock is ________.
A) $50
B) $100
C) $150
D) $200
Constant-Growth DDM
A model for valuing a stock by assuming constant dividends that grow at a steady rate indefinitely.
Beta
A gauge for determining the volatility or inherent risk of a security or portfolio against the market at large.
Dividend
A disbursement from a company to its shareholders, commonly in the form of profit distribution.
- Utilize the Constant-Growth Dividend Discount Model to calculate the value of a stock under conditions of steady growth.
- Implement the Capital Asset Pricing Model (CAPM) to establish the demanded rate of return.
- Learn how adjustments in risk (beta) modify the assessment of stocks and the expected returns.
Verified Answer
RD
Learning Objectives
- Utilize the Constant-Growth Dividend Discount Model to calculate the value of a stock under conditions of steady growth.
- Implement the Capital Asset Pricing Model (CAPM) to establish the demanded rate of return.
- Learn how adjustments in risk (beta) modify the assessment of stocks and the expected returns.