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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…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…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?
- If D0 = $2.00, g (which is constant) = 5.0%, and P0 = $40, then what is the stock’s expected dividend yield for the coming year?A stock just paid a dividend of D0 = $1.50. The required rate of return is ?s= 10.1%, and the constant growth rateis g = 4.0%. What is the current stock price?A stock just paid a dividend of DO = $1.75. The required rate of return is rs=12.0%, and the constant growth rate is g=4.0%. What is the current stock price?
- 9. 0. The Francis Company is expected to pay a dividend of D₁ = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is o.80, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price? Do not round stermediate calculations. Oa. $14.88 Ob. $55.21 c. $20.83 O d. $35.71 e. $52.08 Q Search H 60 LOC hp 25 alt a $ W ctrl www. prese d X delete * Question 40 of 75 ▸ pause ^ 6, ¶¶Ð¸ backspace home lock enter 7 hoThe price of a non-dividend-paying stock is $100. Suppose that the contínuously compounded risk-free rate is 1% per year, the market expected return is 7% (continuously compounded), the stock beta is 1.2, and the stock price volatility is 30% per year. Assume that the stock price follows the Geometric Brownian Motion. a) Solve for the expected stock return per year 0.32 (0.01 + 1.2 * 0.07) + = 0.139 b) A derivative pays off $100 if the stock price is in the range between $90 and $110 in year two and 0 otherwise. Determine its current price. 100 0.1392 = 75.73 c) What is the two-year 95% VaR if you short 100 shares of the stock today given that N (0.05) = -1.645? Note that the stock price follows a log normal distribution rather than a normal distribution1. The firm is expected to pay a dividend of D, = P1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 4.50% per year in the future. The firm's beta is 1.25, the market risk premium is 6.50%, and the risk-free rate is 4.00%. What is the firm's current stock price? a. P17.13 d. P 19.23 b. Р16.39 е. Р31.90 с. Р32.68 f. P 20.10 2. The firm just paid a dividend of D, = P 0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The firm's beta is 1.15, the required return on the market is 9.50%, and the risk-free rate is 4.50%. What is the firm's current stock price? a. P7.97 d. P 5.64 b. Р15.21 е. Р6.59 c. P16.79 f. P16.65
- 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. $784.4. 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?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?
