Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year.Dividends are expected to grow at a rate of 10% per year.The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%.The stock is trading in the market today at a price of $90.00. What is the approximate beta of Risk Metrics's stock?

Question

Quizplus · Accepted Answer

The expected return using the Gordon Growth Model is 13.89% [(3.50 * 1.10) / 90 + 0.10]. Using CAPM: 13.89% = 5% + Beta * (13% - 5%), solving for Beta gives approximately 1.1.

Risk Metrics Company Is Expected to Pay a Dividend of $3.50