High Fly Airline is expected to pay a dividend of $7 in the coming year.Dividends are expected to grow at the rate of 15% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of High Fly Airline has a beta of 3.00.The return you should require on the stock is ________.

Question

Quizplus · Accepted Answer

The required return can be calculated using the Capital Asset Pricing Model (CAPM): Required return = Risk-free rate + Beta * (Market return - Risk-free rate) = 6% + 3 * (14% - 6%) = 6% + 3 * 8% = 6% + 24% = 30%.

High Fly Airline Is Expected to Pay a Dividend of $7