You get a hot tip on a new stock: XYZ Corp. (OK so it’s not the most original name – what do you want for 1 AM as I’m typing this?) Here’s some info you’ve uncovered: XYZ had net profit of $26.2 million, a AAA bond rating, a beta of 1.4, its earnings are expected to grow at 5% and it just paid a dividend of $2.00. Surfing the internet you also found that the unemployment rate for last month was 9%, McDonalds is selling for $72 a share, the 30-year T-Bond is yielding 6% but the 90 day T-bill only 5%. The return on the S&P 500 is 13%, and the finance text you paid $165 is going into a new edition so at best you can sell your book for $24.95!,OK, given all that, what should the price of a share of XYZ be? (Hint: the RRR needed for this formula to work is the rate of return one gets when considering the "risk & return" tradeoff).,
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