Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- You are trying to decide whether to invest in a "value" stock (Hawaii Utility Co.) or a "growth" stock (HI Tech Co.). Hawaii Utility Co. currently pays a dividend of $5 per share per year, and you expect that dividend to grow by 1% per year forever (e.g., $5.05 next year). Its price is $125. HI Tech Co. currently pays a dividend of just $1 per share per year, but you expect its dividend to grow 4%6 per year forever. The price of HI Tech Co is also $125. Given your expectations, is one company a better deal than the other? Explain why or why not? (Hint; figure out the discount rate you would need to rationalize each price using the present value rules that we went over in class).arrow_forwardSaks is expected to pay a dividend in year 1 of $1.92, a dividend in year 2 of $2.24, and a dividend in year 3 of $2.81. After year 3, dividends are expected to grow at the rate of 8% per year. An appropriate required return for the stock is 11%. What should the stock price be worth? (Do not round intermediate calculations. Round your answer to 4 decimal places.)arrow_forwardTSC, Inc. sells for $36 and pays an annual per share dividend of $2.10, which you expect to grow at 5 percent.What is your expected return on this stock?arrow_forward
- A common stock pays an annual dividend per share of $2.10. The market capitalization rate (required return on equity) is 11.5%. If the annual dividend is expected to remain at $2.10, what is the value of the stock? Round your answer to two decimal places.arrow_forwardSummerdahl Resort's common stock is currently trading at $26 a share. The stock is expected to pay a dividend of $1.00 a share at the end of the year (D1 = $1.00), and the dividend is expected to grow at a constant rate of 8% a year. What is the cost of common equity? Round your answer to two decimal places.arrow_forwardGen Lab is expected to pay out a dividend of $0.75 per share in one year. The expected stock price in one year is $42 per share and the required return on the stock (also known as the cost of equity or the equity cost of capital) is 12%. What is the value of the stock today? Round your answer to two decimal places. Your Answer:arrow_forward
- Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $4.15 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company’s stock is 8 percent, 11 percent, and 14 percent, respectively. What is the stock price for each company? What do you conclude about the relationship between the required return and the stock price?arrow_forwardYou buy a share of The Ludwig Corporation stock for $18.60. You expect it to pay dividends of $1.03, $1.0846, and $1.1421 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $21.72 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two decimal places. % Calculate the expected dividend yield. Round your answer to two decimal places. % Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return)? Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forward
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