A stock which is sold at its face value of $3,000 is expected to pay a dividend of $120 for the next three years. It is expected that the price of this stock will increase by 7% of its initial face value each year. The nominal interest rate is 4% per year. What is the risk premium payable on this stock to induce investors to hold the stock for another two years? Risk premium (x) = (Round your answer to two decimal places.)
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- Suppose that you are willing to pay $450.33 today for a share of stock which you expect to sell at the end of one year for $500.25. If you require an annual rate of return of 15 percent, what should be the estimate of the amount of the annual dividend which you expect to receive by the end of Year 1 prior to the sale of the stock? Assume that the estimated return equals the required rate of return. Options: a. $17.63 b. $1.60 c. $10.99 d. $19.25 e. $3.60You observe that the settlement price of a one-year futures contract for 1 share of a dividend paying stock is currently at $52. The current stock price is $50 and the risk-free interest rate is 10% p.a. (compounded annually). It is also known that the dividend yield on the stock is 4% p.a. (compounded annually). Set up a strategy to realize an arbitrage profit today and show the initial and terminal cash flows from each position taken in the strategy. Assume that investors can short-sell or buy the stock on margin and that they can borrow and lend at the risk-free rate. Thank you!You expect a stock to pay annual dividends of $1.39, $1.16, and $1.87 in each of the next three years, with the first dividend payment occurring one year from today. You also expect a stock price of $33.19 immediately after the stock pays the third annual dividend (i.e., exactly three years from today). If the stock's required rate of return is 6%, what is a fair price for the stock today? Round your answer to the nearest penny: Type your answer.....
- 17. A stock which is sold at its face value of $4,000 is expected to pay a dividend of $120 for the next three years. It is expected that the price of this stock will increase by 6% of its initial face value each year. The nominal interest rate is 3% per year. What is the risk premium payable on this stock to induce investors to hold the stock for another two years? Risk premium (x) = (Round your answer to two decimal places.) In the second year, the rating of the company issuing this stock falls and the policy rate is increased. This leads to a change in both the risk premium and the nominal interest rate by 15%. Assume that the other variables determining stock prices remain unchanged. What will be the price of the stock in the second year? The price of stock in the second year(Q+1)= $[ (Round your answer to two decimal places.) Suppose that instead of a contractionary monetary policy, a contractionary fiscal policy was brought into effect, to reduce the budgetary deficit of the…A stock has a current price of $67. An option on this stock that expires in six months has an exercise price of $65. The stock will pay a dividend of $5 in three months. Assume an annualized volatility of 30% and a continuously compounded risk - free rate of 5% per annum. Use the Black - Sholes - Merton model to price this option. 1) Suppose the option is a European put. Calculate the value of the put. 2) Suppose this option is an American call. Use Black's approximation to calculate the value of this call.Consider an example. Assume a share of preferred stock with the following characteristics: Par value $100 Dividend rate 3.0% per year Payment schedule semiannual Maturity date You are analyzing this preferred stock for possible purchase. Your required rate of return on this stock is 5% per year, compounded semiannually. Draw a time line showing the expected dividends for this preferred stock. Calculate the value of this preferred stock based on the required rate of return. Assume that the current market price for this preferred stock is $75 per share. Calculate the expected return based on the market price. Should you invest in the stock? Why or why not? Be sure to use your results from BOTH parts B and C above. You are analyzing a share of XYZ…
- Your broker has recommended that you purchase stock in ZZZ-Best, Inc. She estimates that the 1-year target price is $70, and ZZZ-Best consistently pays an annual dividend of $8. Based on your analysis, you estimate that the stock has a required rate of 18%. What is the intrinsic value of this stock? O $64.43 O $68.73 O $67.35 O $61.86 O $66.10A share of stock with a beta of .75 now sells for $50. The investors expect the stock to pay a year-end dividend of $2. The Treasury bill rate is 4%, and the market risk premium is 7%. If the stock price is perceived to be fair today, what must be the investors’ expectation for the price of the stock at the end of the year? [Hint: at what rate should the stock price change annually?]Islander Corporation's common stock will pay a dividend of $3.50 one year from now. You plan to buy the stock now and sell at the end of one year for $70. At what price must you buy in order to receive your required return of 18%? Solve using excel
- Please answer below three requirements: Question- The current price of a non-dividend paying stock is $30. Use a two-step tree to value a put option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, and in each step the stock price either moves up by 10% or moves down by 10%. Suppose that the risk free rate is 8% per annum with continuous compounding. 1) What should be the EUROPEAN put option price today? 2) If the option was an AMERICAN put option, what should be the price today? 3) If the volatility was given as 30%, how would the AMERICAN put option price change?Over the coming year, Ragwort’s stock price will halve to $75 from its current level of $150 or it will rise to $300. The one-year interest rate is 12%. In a risk-neutral world, what is the probability that Ragwort stock will rise in price? (Round your answer to 2 decimal places.)Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
