Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Concept explainers
Topic Video
Question
Transcribed Image Text:A share of stock with a bela of 0 8 currently sells for $50 Investors expect the stock to pay a year-end dividend of $5. The T-bil rate is 1%, and the market risk premium is 6%. If the
stock is perceived to be fairly priced today, what much be investors expectation of the price of the stock at the end of the year? S
Hint (CAPM Expected Return
(R)-R Beta Market Risk Premium Expected Retum (R)-Dividend Yield Capital Gains Yield, where dividend yield DyPo and capital gains yield (P1-PoPo
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose that you have estimated the following model for a broad cross section of stocks: r(t) = 3% + 2*Dividend_yield(t-1) - 1*ln(Market_capitalization(t-1)) + 3*Book/Market(t-1)Company AC's stock currently is priced such that it offers a 3% dividend yield, has a ln(Market Cap) of 1.6, and a book/market ratio of 1. According to your model, what is AC's expected stock price return for next year? Group of answer choices 3.8% 5.8% 6.5% 10.4% 13.6%arrow_forwardAssume you have created a 2-stock portfolio by investing $30,000 in stock X with a beta of 0.8, and $70,000 in stock Y with a beta of 1.2. Market risk premium is 8% and risk-free rate is 6%. The followings are the probability distributions of Stocks X and Y’s future returns: State of Economy Probability rx rY Recession 0.1 -10% -35% Below average 0.2 2% 0% Average 0.4 12% 20% Above average 0.2 20% 25% Boom 0.1 38% 45% Calculate the portfolio’s expected rate of return and the standard deviation of its future returns Calculate the required rate of return of your portfolio. Which stock in…arrow_forwardst part of th Stock A has a constant growth rate of 4% and a required return of 10%. Stock B has a constant growth rate of 6% and a required return of 12%. Which stock has the higher dividend yield? skills are ree ent as a conc O A O B pt They have the same dividend yield.arrow_forward
- Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $47.02 Expected dividend per share next year $2.46 Constant annual dividend growth rate 5.9% Risk-free rate of return 3.9% The risk premium on Foster stock is ___%arrow_forwardA stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 8.5%, and the constant growth rate is g = 4.0%. What is the current stock price? Select the correct answer. a. $35.57 b. $36.47 c. $37.37 d. $38.27 e. $34.67arrow_forwardA preferred stock is expected to pay a constant quarterly dividend of $1.75 per quarter into the future. The required rate of return, Rs, on the preferred stock is 12.0 percent. What is the fair value (or price) of this stock? Group of answer choices a. $18.65 b. None of the above c. $37.04 d. $24.36 e. $58.33arrow_forward
- The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $36? Choose the right answer: a. 0.3 b. 0.4 c. 0.5 d. 0.6arrow_forwardA stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 9.0%, and the constant growth rate is g = 4.0%. What is the current stock price? Select the correct answer. a. $31.20 b. $33.18 c. $30.21 d. $34.17 e. $32.19arrow_forwardHilltop stock has a current market price of $63 a share. The 1-year $60 call is priced at $8.75 while the 1-year $60 put is priced at $3.42. What is the risk - free rate of return? Group of answer choices 4.04% 3.61 % 4.62% 3.11%arrow_forward
- Stock A has a capital gains yield of 6.5% and a dividend yield of 1.5%. Stock B has a capital gains yield of 8.5% and a dividend yield of 3.5%. Which stock has the higher required return? S en O A O They have the same required return.arrow_forwardMarket Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk free rate is 5.5% APPR Inc. has a beta of 9 and is expected to pay a dividend of $3.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of return equals the expected rate of return. Calculate the following Required rate of return of APPR Inc. stock Expected growth rate Dividend yield and capital gain yield b. Farrow_forwardYou are considering purchasing a share of preferred stock with the following characteristics: par value = $100 dividend rate = 12% per year payment schedule = quarterly maturity date = required rate of return = 6% per year current market price = $135 per share Based on this information, answer the following: A. What is the dollar amount of the quarterly dividend on this stock? B. Using the Discounted Cash Flow Method, what is the dollar value of this stock? C. Using the Discounted Cash Flow Method, what is the annual expected return for this stock? D. Based on your answer to part B, should you invest in the stock? Why or why not? E.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education