1. (True or false) Suppose I invested $10,000 in stock A 20 years ago and held thatinvestment (reinvesting dividends, if any) until today. If stock A achieved a positiveannual arithmetic rate of return over this 20-year period, then I must have morethan $10,000 in my investment in this stock today.2. (True or false). Short-selling allows investors to benefit from price declines.3. (True or false). Suppose I hold a portfolio of two assets A and B. 40% of my moneyis invested in A and the remaining 60% is invested in B. Suppose the risks (returnvolatility) of A and B are both 10%. Then, the volatility of my portfolio return willalso be 10%.1

Name: 1. (True or false) Suppose I invested $10,000 in stock A 20 years ago
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Description: 1. (True or false) Suppose I invested $10,000 in stock A 20 years ago and held thatinvestment (reinvesting dividends, if any) until today. If stock A achieved a positiveannual arithmetic rate of return over this 20-year period, then I must have more

Future value is the value of a current asset in future. The value of an asset grows overtime.

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1. (True or false) Suppose I invested $10,000 in stock A 20 years ago and held that investment (reinvesting dividends, if any) until today. If stock A achieved a positive annual arithmetic rate of return over this 20-year period, then I must have more than $10,000 in my investment in this stock today.

1. (True or false) Suppose I invested $10,000 in stock A 20 years ago and held that investment (reinvesting dividends, if any) until today. If stock A achieved a positive annual arithmetic rate of return over this 20-year period, then I must have more than $10,000 in my investment in this stock today.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 3P

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Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: PO = D1/(r - g). Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. Such a stock should have a value of zero until it actually begins paying dividends. The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount.
Suppose you bought 1,050 shares of stock at an initial price of $55 per share. The stock paid a dividend of $.64 per share during the following year, and the share price at the end of the year was $50. a. Compute your total dollar return on this investment. (A negative value should be indicated by a minus sign.) b. What is the capital gains yield? (A negative value should be indicated by a minus sign. c. What is the dividend yield?
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?
1. Walton Inc.'s stock just paid a dividend of $1. The company's dividend is expected to grow at a rate of 0.23 this year, 0.18, next year, and 0.06 for every year after that. If Walton has a required rate of return of 0.12, what is the value of Walton's the stock? 2.
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1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96. Please provide an accurte answer.
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Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant growth rate of 12%. Your required return on this stock is 15%. From a strict valuation standpoint, you should: A. Buy the stock; it is fairly valued. B. Buy the stock; it is undervalued by $5.67 C. Buy the stock; it is undervalued by $.13. D. Not buy the stock; it is overvalued by $5.67 E. Not buy the stock; it is overvalued by $.13
What comes closest to the value today of a stock that just paid a dividend of $1.50 and expects to grow that dividend by 7.00% per year in year 1 and year 2, and then grow but will then see the growth in dividends fall to 2.00% in the third year and will continue to grow at that lower rate each year thereafter forever. Using a required rate of return of 6.25%, provide an estimate of the price of the stock
Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 10.00%. The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the D2 constant growth model: P₁: TS-8 Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Activity Frame Dividend Price PV t 10.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $15.85 1 1.03 16.46 $0.94 2 1.07 17.08 $0.97 3 1.11 17.69 $1.01 4 1.15 18.31 $0.97 5 1.19 18.92 $0.94 The dividend yield for period 1 is and it will The capital gain yield expected during period 1 is and it will each period. each period. If it is…