Given the following information, calculate the expected capital gains yield for Chicago Bears Inc.: beta = 0.6; r_M = 15%; r_RF = 8%; = $2.00; P₀ = $25.00.Assume the stock is in equilibrium and exhibits constant growth. A) 3.8% B) 0% C) 8.0% D) 4.2% E) None of the above.

Question

Quizplus · Accepted Answer

The capital gains yield (g) can be calculated using the constant growth model: r_RF = rRF + β(rM - rRF) + g Where: rRF = risk-free rate = 0% rM = market return = r_M = 15% β = beta = 0.6 r_RF = required return on Chicago Bears Inc. stock = 8% g = capital gains yield (what we are solving for) Rearranging the formula we get: g = r_RF - rRF - β(rM - rRF) g = 8% - 0% - 0.6(15% - 0%) g = 4.2% Therefore, the expected capital gains yield for Chicago Bears Inc. is 4.2%, option (D) is the correct answer.

Given the Following Information, Calculate the Expected Capital Gains Yield