Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 10%. Its expected earnings this year are $4 per share. Complete the following table.. Note: Leave no cells blank. Enter a zero, wherever necessary. Do not round intermediate calculations. Enter the growth rate as a whole percent. b. C. Plowback Ratios 0 0.40 0.80 Growth Rate Stock Price % 4% 8% P/E Ratio 10 10 10

Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 10%. Its expected earnings this year are $4 per share. Complete the following table.. Note: Leave no cells blank. Enter a zero, wherever necessary. Do not round intermediate calculations. Enter the growth rate as a whole percent. b. C. Plowback Ratios 0 0.40 0.80 Growth Rate Stock Price % 4% 8% P/E Ratio 10 10 10

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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Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 20%. Its expected earnings this year are $2 per share. Complete the following table. Note: Leave no cells blank. Enter a zero, wherever necessary. Do not round intermediate calculations. Round growth rate to two decimal places. a. b. C₁ Plowback Ratio 0 0.20 0.60 Growth Rate Stock Price P/E Ratio % % %
Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $2 per share. Complete the following table. (Leave no cells blank. Enter a zero, wherever necessary. Do not round intermediate calculations. Round growth rate to two decimal places.) Plowback Ratio Growth Rate Stock Price P/E Ratio a. 0 % b. 0.40 % c. 0.60 %
Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $4 per share. Complete the following table. Plow Back Ratio Growth Rate Stock Price P/E Ratio a. 0 b. .20 c. .80
Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 7 percent. Stock U, which has a beta coefficient equal to 0.7, is currently selling for $28 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $1.75 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is _______ %, is (greater than, lower than, or equal to) the expected rate of return, that is _______ %, which means that (the selling price is too low, the selling price is too high, or the stock is correctly priced).
Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock U, which has a beta coefficient equal to 1.3, is currently selling for $37 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $2.75 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is %, is -Select- the expected rate of return, that is %, which means that -Select-
Analogue Technology has preferred stock outstanding that pays a $13.45 annual dividend. It has a price of $131. What is the required rate of return (yield) on the preferred stock? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %
Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 9 percent. Stock U, which has a beta coefficient equal to 1.2, is currently selling for $39 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.50 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is 14.7 %, is -Select- Hide Feedback -Select- greater than lower than equal to the expected rate of return, that is %, which means that the selling price is too high
The stock of Business Adventures sells for $65 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $2.40 1.60 0.85 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Stock Price $73 66 57 % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) %
Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 8 percent. Stock U, which has a beta coefficient equal to 1.3, is currently selling for $30 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.00 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is %, is the expected rate of return, that is %, which means that .
Investors require an 8% rate of return on Mather Company's stock (l.e., rs = 8%). a. What is its value if the previous dividend was Do = $3.00 and Investors expect dividends to grow at a constant annual rate of (1) -6%, (2) 0%, (3) 3 %, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ 20.14 37.50 61.80 b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 8% and the expected growth rate was (1) 8% or (2) 12%? Round your answers to the nearest cent. If the value is undefined, enter N/A. (1) $ (2) $
The stock of Business Adventures sells for $30 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Dividend $ 2.00 1.40 0.50 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Answer is complete and correct. Stock Price $ 40 34 25 14.33 22.60 Expected return Standard deviation b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % % Answer is complete but not entirely correct. 8.75 11.30 % %
Investors require an 8% rate of return on Mather Company's stock (l.e., rs = 8%). a. What is its value if the previous dividend was Do = $3.00 and investors expect dividends to grow at a constant annual rate of (1) -6%, (2) 0%, (3) 3 %, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ 20.14 37.50 61.80 b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 8% and the expected growth rate was (1) 8% or (2) 12% ? Round your answers to the nearest cent. If the value is undefined, enter N/A. (1) $ (2) $ Are these reasonable results? I. These results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate. II. These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return. III. These results show that the formula does not make…

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