The Risk-Free Rate Is 10 Percent, and the Expected Return

question 35

Essay

The risk-free rate is 10 percent, and the expected return for the stock market is 16 percent. Evergreen Inc. has a beta of 1.1, and investors expect dividends and earnings to grow at 8 percent per year. The current dividend is $1.20 and the payout ratio is 50 percent.
(a) Calculate the P/E ratio for Evergreen Inc.
(b) Estimate the price of the stock for the next year using the multiplier model.

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