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A stock that sells for $100 entitles you to a dividend payment of $4 today. You estimate that the growth rate of the firm's dividends is about 2 percent per year, and that the risk-free rate is 3A??1 percent. What is the risk premium suggested by the price of this stock? Does it strike you as high or low? How would your answer change if the stock price were $150 instead of $100? The risk premium is lower than the historical average of 4%.

 

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