Jersey
Jewel Mining has a beta coefficient of 1.2. Currently the risk-free rate is 5
percent and the anticipated return on the market is 11 percent. JJM pays a
$4.50 dividend that is growing at 6 percent annually.
a.
What is the required return for JJM?
b.
Given the required return, what is the value of the stock?
c. If
the stock is selling for $80, what should you do?
d. If
the beta coefficient declines to 1.0, what is the new value of the stock?
e. If
the price remains $80, what course of action should you take given the
valuation in (d)?
TUTORIAL PREVIEW
a.
What is the required return for JJM?
r = Rf + b (Rm – Rf)
File name Jersey
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