Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- please helparrow_forwardConsider 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…arrow_forwardA firm is expected to pay a dividend of $2.85 next year and $3.15 the following year. Financial analysts believe the stock will be at their price target of $110 in two years.Compute the value of this stock with a required return of 13.1 percenarrow_forward
- You are considering purchasing stock in a company that is expected to pay a $ 3.34 dividend later this year and you require a return of 7.79%. Assume the dividend will continue to be paid each year thereafter and will grow every year as described below. C What is the maximum price you would be willing to pay if you expect a growth rate of 2%? $ 58.84 (Enter as a whole number with two decimal places, such as 10.19.) What is the maximum price you would be willing to pay if you expect a growth rate of 5%? $ 125.70 What is the maximum price you would be willing to pay if you expect a growth rate of 7%? $452.38 What is the relationship between the price of a stock and the firm's growth rate? O A. The stock price is exactly equal to the growth rate times the dividend. B. As the growth rate investors expect increases, the price they are willing to pay also increases. OC. As the growth rate investors expect increases, the price they are willing to pay decreases. O D. There is no relationship.arrow_forwardMelissa Cutt is thinking about buying some shares of EZLawn Equipment, at $48.97 per share. She expects the price of the stock to rise to $58 35 over the next 3 years. During that time she also expects to receive annual dividends of $3.51 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 9%? b. What is its expected return? a. The intrinsic worth of this stock is $. (Round to the nearest cent.)arrow_forwardSteady As She Goes Inc. will pay a year-end dividend of $2.50 per share. Investors expect the dividend to grow at a rate of 4% indefinitely. a. If the stock currently sells for $25.00 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) Expected rate of return % b. If the expected rate of return on the stock is 16.50%, what is the stock price? (Do not round intermediate calculations. Enter your answers rounded to 2 decimal places.) Stock pricearrow_forward
- You are considering the purchase of a stock that yesterday announced EPS of $6.24. You feel that earnings will grow at 23% for the next three years. After that growth in earnings should level-off to 3% per year into the future. You require a return of 13%. Based on these assumptions, what would you pay for the stock today? $105.12 $141.83 $95.59 $119.50arrow_forwardSuppose you know that Bird Eye's stock currently sells for $80 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the dividend per share for next year?arrow_forwardA stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $59. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $44. What are the dividend yield and percentage capital gain in this case?arrow_forward
- You are contemplating the purchase of stock for Tenet Healthcare based on the recommendation of a financial advisor. The stock just recently paid a per share dividend of $2.00 and the dividend is expected to grow at a constant rate of 5% per year. If the required market rate of return on Tenet Healthcare stock is 12%: What is the expected dividend amount per share over the next three years? What is the stock's current estimated value and for each of the next three consecutive years? Estimate the expected divided yield, capital gains yield, and expected total return/yield for each of the next three years.arrow_forwardThe FI Corporation's dividends per share are expected to grow indefinitely by 5% per year. a. If this year's year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities? c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)?arrow_forwardNoRagrets, Inc is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $2.40. After year 2, dividends are expected to grow at the rate of 6% per year. An appropriate required return for the stock is 9%. The stock should be worth today. Select one: O a. $73.37 O b. $79.63 O c. $67.32 O d. $73.21arrow_forward
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