None Duke Blue Devil Inc. just paid a dividend of $2.00. Its stock is now selling for $48 per share. Thefirm is 50% as risky as the market. The expected return on the market is 14%, and the yield on U.S.Treasury bonds is 11%. If the market is in equilibrium, what rate of growth is expected?a. 13%b.10%4%JJ.d.8%e. -2%

Step 1: Given Value for Calculation Current Dividend = d0 = $2Current Price of Stock = p0 =…

Answered: Duke Blue Devil Inc. just paid a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

The risk-free rate is 3% per annum with continuous compounding. The price of stock LUV is $85, and its stock-price volatility is 25% per annum. LUV currently does not pay a dividend. What is the price of a 3-month at-the-money American call on LUV? A.$2.94 B.$3.67 C.$5.06 D.$4.54
We know the prices and payoffs for securities 1 and 2 and they are represented as follows. Security Cash Flow in One Year Strong Economy Market Price Today $25 $70 Asset Payoffs in One Year ($) Weak Economy $7,000 Weak Economy Strong Economy $15,000 $0 $100 The risk-free rate was calculated to be 5.2632%. Assume the probabilities of the weak economy and the strong economy are both 0.50. Suppose a company will last one year and its assets will generate payoffs in one year as follows. Complete parts a through c. $100 $0 a. What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected return of the assets and what is the risk premium for the assets? The assets today have a value of $ (Do not round until the final answer. Then round to the nearest dollar)
9. The last dividend paid by the firm was P 1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (r.) is 12.0%. What is the best estimate of the current stock price? а. Р 39.38 d. P 40.48 с. Р 37.05 f. P 53.61 b. Р38.16 e. P41.70 10. The last dividend paid by the firm was P 1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r.) is 11%, what is its current stock price? а. Р 30.57 d. P 33.50 b. Р 34.50 с. Р 32.49 e. P31.52 f. P 36.82
Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? a. 5.95% b. 5.54% O c. 6.01% O d. 6.91% O e. 6.07%
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Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 6 percent indefinitely. Assuming Tangshan China's most recent dividend was $2.1, what is the required rate of return on Tangshan's stock? a. 8.6% b. 10.6% c. 7.3% d. 9.4%
Meow.net recently paid a dividend of $2.05 per share, but analysts expect the dividend to increase by 8% per year. The risk- free rate is 1.5% and the market risk premium is 7%. If Meow's beta is 2.15 and the market is in equilibrium what is the value of the stock? O $25.89 O $7.68 O $13.38 O $23.98
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1. The total market value of the equity of Living Inc. is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and the expected risk premium on the market is 10%. The treasury bill rate is 4%, and investors believe that the Living's debt is essentially free of default risk. a. What is the required rate of return on Living stock? b. Estimate the WACC assuming a tax rate of 21%. c. Estimate the discount rate for an expansion of the company's present business. *ANSWER MUST BE IN 2 DECIMAL.

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