For five utility stocks, the table below provides the expected dividend for next year, the current market price, the expected dividend growth rate, and the beta. The risk free rate is currently 5.3 percent, and the market risk premium is 6.0 percent.
|
Stock
|
Dividend(D1)
|
Price(Po)
|
Dividend Growth
Rate (g)
|
Beta (ß)
|
|
American Electric (NYSE: AEP)
|
2.4
|
46.17
|
5.00%
|
0.6
|
|
Consolidated Edison (NYSE: ED)
|
2.2
|
39.8
|
5
|
0.6
|
|
Exelon Corp. (NYSE: EXC)
|
1.69
|
64.12
|
7
|
0.8
|
|
Southern Co. (NYSE: SO)
|
1.34
|
23.25
|
5.5
|
0.65
|
|
Dominion Resources (NYSE: D)
|
2.58
|
60.13
|
5.5
|
0.65
|
A. Calculate the expected rate of return for each stock using the Gordon growth model.
B. Calculate the required rate of return for each stock using the CAPM.