Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
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Category > Management Posted 26 Oct 2017 My Price 4.00

risk premium

Stock prices and the risk premium

 

Suppose a share is expected to pay a dividend of $1,000 next year, and the real value of dividend payments is expected to increase by 3% per year forever.

 

a. What is the current price of the stock if the real interest rate is expected to remain constant at 5%? at 8%? Now suppose that people require a risk premium to hold stocks.

 

b. Redo the calculations in part (a) if the required risk premium is 8%.

 

c. Redo the calculations in part (a) if the required risk premium is 4%.

d. What do you expect would happen to stock prices if the risk premium decreased unexpectedly? Explain in words

Answers

Maurice Tutor
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Status NEW Posted 26 Oct 2017 10:10 AM My Price 4.00

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