Question 4 and 5 are based on the following information The earnings per share of Ouno Ltd are expected to be $1.

Question 4 and 5 are based on the following information The earnings per share of Ouno Ltd are expected to be $1.25 next year and the company is expected to maintain a constant payout ratio of 40% forever. The company’s earnings are expected to grow at a constant rate of 8% p.a. forever. The standard deviation of the stock’s return is 40% and its covariance with the market index is 0.05. The expected market risk premium is 10% and the standard deviation of the market index is 25%. At present, the government bill rate is 5%. 4. Ouno Ltd’s beta is closest to: 2 a. 0.6 b. 0.8 c. 1.0 d. 1.2 5. In equilibrium Ouno Ltd’s stock price should be closest to: a. $10.00 b. $15.00 c. $25.00 d. $50.00 

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