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Business, 24.02.2020 18:09 alinegonzalez0027

The risk-free rate of return is 7%, the expected rate of return on the market portfolio is 14%, and the stock of Xyrong Corporation has a beta coefficient of 2.6. Xyrong pays out 60% of its earnings in dividends, and the latest earnings announced were $9.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 25% per year on all reinvested earnings forever.

a. What is the intrinsic value of a share of Xyrong stock?
b. What is your expected one-year holding-period return on Xyrong stock?

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