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- 3. What is the intrinsic value of a share of stock if expected dividends are $8/share and the expected price year is $90/share? Assume a discount rate of 10%. What is the expected return and what should be the decision from an investor?. in 11. A stock is currently selling for $92.45 and is expected to sell for $109.07 in 1 year. If the company pays a dividend of $2.98 what is the stock's HPR? 2. A stock has a beta of 1.14. The risk-free rate is 1.809% and the market risk premium is 5%. What is the fair return on the stock?11) Suppose that a company has just paid a dividend of $1.50 per share. Dividends are expected to grow at 4% per year forever. The market risk premium is 3% and the risk-free rate is 4%. The variance of the market portfolio is 0.15 and the covariance of the stock with the market portfolio is 0.30. What is the fair price of the stock? A. $22.28 B. $26 C. $34 D. $78
- 4.4. Peggotty Services common stock has a B = 1.15 and it expects to pay a dividend of $1.00 after one year. Its expected dividend growth rate is 6%. The riskless rate is currently 12%, and the expected return on the market is 18%. What should be a fair price of this stock?3. a. Suppose a stock pays currently pays a $10 dividend each year and that the dividend is expected to grow at 3% each year. Suppose that the risk-adjusted discount rate for that stock is 8%. According to fundamental analysis stock prices are the present value of expected future dividends (discounted at the risk-adjusted discount rate). What should the current price of this stock be? Hint: a=(1+g)/(1+i) where g is the growth rate in dividends and i is the discount rate for stocks. Use the formula in 2. but let ?? → ∞. b. For the stock in part a, what is the expected rate of return for that stock. c. Suppose that market participants think the stock has become riskier and raise the discount rate for the stock to 10%. What is the new stock price value? What is the expected rate of return for this stock?← You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.) ...
- You are thinking of buying a stock priced at $106 per share. Assume that the risk-free rate is about 5.1% and the market risk premium is 6.4%. If you think the stock will rise to $115 per share by the end of the year, at which time it will pay a $2.59 dividend, what beta would it need to have for this expectation to be consistent with the CAPM?9. A common stock offers dividend of $2 next period and its price is $30 next period. Suppose that the covariance of this stock and market is 24, market average return is 18% and market standard deviation is 4%, and the risk-free interest rate is 5%. What is proper discount rate for this stock? What is the value of this stock today? Now assume that investors will hold this stock into the indefinite future. The growth rate of dividends is 8%. Stockholders’ desired discount rate is 15%. What is the implied fair price of this stock?Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock U, which has a beta coefficient equal to 0.9, is currently selling for $30 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $1.75 per share. Is Stock U correctly priced? Explain.
- 2. You are considering a stock A that pays a dividend of $1. The beta coefficient of A is 1.3. The risk free return is 6%, while the market average return is 13%. a. What is the required return for Stock A? b. If A is selling for $10 a share, is it a good buy if you expect earnings and dividends to grow at 6%? 3. Lawrence Industries’ most recent annual dividend was $1.80 per share (D0$1.80), and the firm’s required return is 11%. Find the market value of Lawrence’s shares when: a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity. b. Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity. c. Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.A share of stock with a beta of 0.78 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%. a. Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? Complete this question by entering your answers in the tabs below. Required A Required B Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? Note: Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 decimal places. Opportunity cost of capital The stock is a bad buy and the investors will t invest %1. What would be the current desired stock price of a share of Bowden Corporation stock that pays a P2 dividend and will be worth P110 in 1 year? A 12% return on equity is required. P110 P98.21 P112 P100 2. A stock has an expected return of 12.25 percent. The beta of the stock is 1.15 and the risk-free rate is 5 percent. What is the market risk premium? 7.25% 6.50% 6.30% 1.30% 15.00% 3. The dividends and stock price of Mimi Company are expected to grow at 5 percent per year at very far future year. Mimi’s common stock sells for P25 per share, its last dividend was P2.50, Mimi should pay P2.50 flotation cost. What is the expected return on retained earnings for Mimi Company? 15.5 percent 16.11 percent 15.00 percent 16.67 percent
