Question

Greystone Inc. plans to pay a $4.30 dividend during the upcoming year, and dividends are expected to grow at the rate of 8% per year. The risk free rate is 6% and the expected return on the market portfolio is 12%. The current price of the stock is $85. What is the estimated beta of Greystone, Inc.

Answer 1

Beta = 1.18

Step-by-step explanation:

The computation of the beta is shown below:

But before that we need to calculate the following calculations

Current stock price = D1 ÷ (Required rate of return - growth rate)

$85 = $4.30 ÷ (Ke - 0.08)

(Ke - 0.08) = 0.0506

Ke = 0.1306

= 13.06%

Now

Expected rate of return(Ke) = Risk free rate + Beta × (Market rate of return - Risk free rate of return)

13.06% = 6% + Beta × (12% - 6%)

13.06% = 6% + Beta × 6%

So, the Beta = 1.18