ABC company's ordinary shares are expected to pay $ 3 per share in dividends in...
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ABC company's ordinary shares are expected to pay $ 3 per share in dividends in 4 years and after which the dividends are expected to grow at 2% annually forever. Company ABC's shares have a beta of 1.75. The long-term return of ASX200 is 9% and the return of T-bonds is 4%.
(a) What is the expected return of ABC's shares according to the CAPM?
(b) What is the implied price per share?
(c) If the shares are selling for $25/share, should you make the investment?
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