16. Exactly eight (8) years ago, ABC, Inc. issued preferred stock that sold for $900. If the discount rate on that issue is higher today that it was 8 years ago, the price of ABC’s preferred stock today is: a. Higher than $900 b. Lower than $900 c. $900 d. There is not enough information provided to answer this question. 17. Currently, Rf = 4% and the market risk premium (i.e., Rm – Rf) = 8%. Assume that Phogurn Company has a share of stock outstanding that just paid a dividend of $4.50 per share. The dividends of the company are expected to grow at a constant rate of 3% per year forever. If Phogurn Company’s stock currently has a beta of 0.8, according to the Capital Asset Pricing Model and the constant dividend growth model, what is the current equilibrium price of Phogurn Company’s stock? a. $66.33 b. $64.20 c. $62.64 d. $63.78 e. None of the answers listed above are within $0.10 of the correct price. 18. A bond issued by Geo-Shock Inc. has 7 years remaining until maturity. The par value of the bond is $1,000, the coupon rate is 7.40% and is paid semi-annually. The yield-to-maturity is 7.21%. The bond should sell for $______. a. 1,004.35 b. 1,015.23 c. 1,026.10 d. 1,034.37 e. 1,010.30
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
16. Exactly eight (8) years ago, ABC, Inc. issued
issue is higher today that it was 8 years ago, the price of ABC’s preferred stock today is:
a. Higher than $900
b. Lower than $900
c. $900
d. There is not enough information provided to answer this question.
17. Currently, Rf = 4% and the market risk premium (i.e., Rm – Rf) = 8%. Assume that Phogurn Company has a
share of stock outstanding that just paid a dividend of $4.50 per share. The dividends of the company are
expected to grow at a constant rate of 3% per year forever. If Phogurn Company’s stock currently has a beta
of 0.8, according to the
current
a. $66.33
b. $64.20
c. $62.64
d. $63.78
e. None of the answers listed above are within $0.10 of the correct price.
18. A bond issued by Geo-Shock Inc. has 7 years remaining until maturity. The par value of the bond is $1,000,
the coupon rate is 7.40% and is paid semi-annually. The yield-to-maturity is 7.21%. The bond should sell for
$______.
a. 1,004.35
b. 1,015.23
c. 1,026.10
d. 1,034.37
e. 1,010.30
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