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Short Answer Question. You are a stock analyst and your friend has approached you with...

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Finance

Short Answer Question.

You are a stock analyst and your friend has approached you with a hot tip. He is interested in a stock which currently sells at $50.00, It just paid a dividend of $1.50, and its historic dividend growth has been 4% annually, and this is not expected to change in the future. This stock is considered to be 1.5 times as volatile as the stock market on average.

You have done some market research and found the following information. Government of Canada 90 day commercial paper (short term borrowing) is yielding 3.0% and its 10 year bonds yield 4.0%. The return on the stock market has been 10% the past year.

Showing all calculations to support your answer, give a recommendation to your friend regarding this stock.

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