Miltmar Corporation will pay a year-end dividend of $3, and dividends thereafter
ID: 2772547 • Letter: M
Question
Miltmar Corporation will pay a year-end dividend of $3, and dividends thereafter are expected to grow at the constant rate of 4% per year. The risk-free rate is 4%, and the expected return on the market portfolio is 14%. The stock has a beta of 0.90.
Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a.Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Answer (a) Market Capitalization Rate
Answer (b) intrinsic value of the stock
Risk Free Rate (Rf) 4% Expexted Return on Market Portfolio (Rm) 14% Beta 0.9 Market Capitalization Rate Ke= Rf+Beta*(Rm-Rf) Ke= 0.04+(0.90*(0.14-0.04)) 13%