Tangshan China's Stock Is Currently Selling for $160

question 119

Essay

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. The expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Tangshan has a beta of 1.20.
(a) What is the expected return based on the dividend valuation model?
(b) What is the required return based on the CAPM?
(c) Would Tangshan China be a good investment at this time? Explain

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Definitions:

Coefficient of Correlation

A statistical measure that calculates the strength of the relationship between the relative movements of two variables.

Covariance

A measure that indicates the extent to which two variables change together, showing if increases in one variable correspond to increases in another.

Test Scores

Numeric or categorical quantifications that represent an individual's or group's performance on an examination.

Distribution

A statistical term describing how values in a data set are spread out across different categories or ranges.