MyLab Finance Solutions7-13 Explain the linkages among financial decisions, return, risk, and stockvalue.7-14 Assuming that all other variables remain unchanged, what effect wouldeach of the following have on stock price? (a) The firm's risk premiumincreases. (b) The firm's required return decreases. (c) The dividendexpected next year decreases. (d) The growth rate of dividends isexpected to increase.

A stock market, also known as an equity market or share market, is a platform where buyers and…

Answered: Lab Finance Solutions 7-13 Explain the…

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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which one is correct please confirm? QUESTION 25 The constant growth valuation model approach to calculating the cost of equity assumes that ____. a. earnings, dividends, and stock price will grow at a constant rate b. the growth rate is greater than or equal to ke c. earnings and dividends grow at a constant rate, but stock price growth is indeterminate d. dividends are constant
Question 2. Consider the data in the table bolow, which shows the relevant data for the stocks of six firms: GE, Apple, Bank of America, Exxon, Pfizer, and Home Depot. Rf is the risk-free rate and Ap:/p;is the growth rate of the stock price. Additionally, the table has the actual market price of each stock (PM) as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of each stock. Given your answer, should you buy the stock or put the money into a safe asset? Firm Dividend RF Ap:/ps рм GE 0.38 4.2 3.18 32.1 Apple 2.03 4.2 2.04 106.1 Bank of America 0.2 4.2 3.4 15.9 Еxxon 0.75 4.2 3 87.5 Pfizer 1.12 4.2 1.5 35.7 Home Depot 1.78 4.2 3.01 135 Source: Morningstar, Sept. 1, 2016.
6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?
2
Please provide a step-by-step solution with an explanation.
7. Consider the following information about Stocks I and II: Probability of Rate of Return if State Occurs State of Economy Recession Normal Irrational exuberance State of Economy .25 .50 .25 Stock I .02 .21 .06 Stock Il -.25 .09 .44 The market risk premium is 8 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is "riskier"? Explain.
choose the answer only
5. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: 20.0 REQUIRED RATE OF RETURN (Percent) 6 18.0 12.0 60 0.5 1.0 RISK (Beta) Retum on HC's Stock 20
Answer this question based on the dividend growth model. If you expect the required rate of return to increase across the board on all equity securities, then you should also expect: A decrease in all stock values. All stock values to remain constant. An increase in all stock values. An increase or a decrease in all stock values. None of the above.
Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth Recession E (r) = Σs=1 P(s)r(s) Var (r) = ² = Probability 0.3 0.4 0.3 Σs ₁ p (s)[r (s)- E (r)]² HPR 44% 14 -16 SD (r) = 0 = Var (r) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
3
Please help with these one as well I need clear formulas

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