Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Market Efficiency
Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing t…
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Intro A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals Submit Part 2 In 6 years, the P/E ratio is expected to be 16 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio? 1+ decimals Submit
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Transcribed Image Text:Intro A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals Submit Part 2 In 6 years, the P/E ratio is expected to be 16 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio? 1+ decimals Submit
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