Stock in Globex Corporation Has a Beta of 0

question 224

Multiple Choice

Stock in Globex Corporation has a beta of 0.9. The expected market return is 10%, and T-bills are currently yielding 3.5%. The company's next dividend is expected to be $2 per share, and dividends have been growing at a 4% annual rate. If the stock sells for $25 per share, what is your best estimate of the company's cost of equity?

• A) 11.59%
• B) 10.68%
• C) 9.77%
• D) 8.86%
• E) 7.95%

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Definitions:

Corporate Houses

Large companies or business organizations that operate in multiple areas or sectors.

Subsidized Rate

A reduced interest rate on loans provided by the government or other institutions to support specific groups or activities.

Productivity

The measure of how efficiently goods and services are produced, often evaluated as output per unit of input.

Standard Of Living

The level of wealth, comfort, material goods, and necessities available to a person, family, or group in a society.