A listed Company has a beta of 1.5 and the riskless rate for one-year Treasury bills is 5.2% and the expected return for the market is 13.5%. What is the company's capitalization rate? Suppose the company has expected ea

Using the CAPM straight-line formula, the capitalization rate (the required return an investor would demand to invest in the company) is Expected rate of Return = R f + B i (R M - R F ) R f = Rate of Risk free return B i = Beta E(R M ) = Expected rate of return on market 5.2% + 1.5 * (13.5% - 5.2%) 5.2% + 12.45% = 17.65%. Applying the Gordon model, the price should be P 0 = E 1 (1-b) / (k-br) [₹6.80 * (1 + 0.055)] * (1 - 0.25) = 7.174 * 0.75 = 5.3805 k = 17.65% = 0.1765 g = 5.5% = 0.055 P 0 = 5.3805 / (0.1765 - 0.055) = 5.3805 / 0.1215 = ₹44.284 Share price of the Company = ₹44.284