00:01
Hello, let's start with part a.
00:04
What does this difference in risk premiums tell us about the dividends from each stock? so the stock with the higher risk premium, so higher risk premium means that dividends are more variable, or the higher variance.
00:38
Higher variance or this means that they are more variable.
00:41
Risky.
00:44
Just because the expected dividend for each stock is the same, this does not mean that the variance of the dividend return is the same.
00:56
So higher risk premium means higher variance.
01:02
Okay, part b.
01:04
Now let's use the gordon growth model to calculate the price of both stocks.
01:14
Let's start with the first price, the price of 3 % risk premium stock, like 3%.
01:24
And we can find this answer.
01:29
We divide 100.
01:35
100 is the expected dividend.
01:38
We divided this by 5 % is the economy's safe interest rate.
01:49
So 0 .05.
01:52
We add the risk premium of the first stock, which is 3%.
02:02
And also we subtract the expected growth rate of dividends, which is 3%...