Assume a major investment service has just given Oasis Electronics its highest investment rating, along with a...

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Assume a majorinvestment service has just given Oasis Electronics its highestinvestment rating, along with a strong buy recommendation. As aresult, you decide to take a look for yourself and to place a valueon the company's stock. Here's what you find: This year, Oasis paidits stockholders an annual dividend of 2.16 a share but because ofits high rate of growth in earnings, its dividends are expected togrow at the rate of 12% a year for the next 4 years and then levelout at 9% a year. So far you've learned that the stock has a betaof 1.66, the risk-free rate of return is 6%, and the expectedreturn on the market is 12%. Using the CAPM to find the requiredrate of return, put a value on this stock.
1. Using the CAPM, therequired rate of return on the investment is ___ % ? (Round totwo decimal places)
2. The value of thecompanies stock is $_. (Round to the nearest cent)
Please help, thankyou!

Answer & Explanation Solved by verified expert

4.0 Ratings (834 Votes)

1 As per CAPM expected return riskfree rate beta expected return on the market riskfree rate Expected return 6 166 12 6 Expected return 1596 2 Required rate 1596 Year Previous See Answer

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Assume a majorinvestment service has just given Oasis Electronics its highestinvestment rating, along with a strong buy recommendation. As aresult, you decide to take a look for yourself and to place a valueon the company's stock. Here's what you find: This year, Oasis paidits stockholders an annual dividend of 2.16 a share but because ofits high rate of growth in earnings, its dividends are expected togrow at the rate of 12% a year for the next 4 years and then levelout at 9% a year. So far you've learned that the stock has a betaof 1.66, the risk-free rate of return is 6%, and the expectedreturn on the market is 12%. Using the CAPM to find the requiredrate of return, put a value on this stock.1. Using the CAPM, therequired rate of return on the investment is _______ % ? (Round totwo decimal places)2. The value of thecompanies stock is $_____. (Round to the nearest cent)Please help, thankyou!