Question

I am having difficulty with this question. How do I calculate the discount rate on this stock? />Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2015 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return (%)Average Premium (Extra return versus Treasury bills) (%)Treasury bills 3.8    Treasury bonds 5.3  1.5 Common stocks 11.4  7.6  What is the discount rate on the stock?

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