Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant rate of 6.0 percent each year. The beta of this stock is 1.30, the risk-free rate is 4.0 percent, and the expected return on the market is 10.0 percent. Determine how much you should be willing to pay (the intrinsic value) for this stock today. Assume that CAPM is the correct model for required returns. 536.55 $54.83 $63.97 $73:10 545.69arrow_forwardYou are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.75 a share at the end of the year (D1 = $2.75) and has a beta of 0.9. The risk-free rate is 4.7%, and the market risk premium is 4.5%. Justus currently sells for $50.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardSuppose 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 .arrow_forward
- A Company has just paid an quarterly dividend of $2.5 per share, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.5%, and the risk-free rate is 4.0%. What is the company's current stock price?arrow_forwardJJM has a beta coefficient of 1.2. currently the risk free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $4.50 dividend that is growing at 4 percent annually. A. what is the required return for JJM? B. GIVEN THE REQUIRED RETURN, WHAT IS THE VALUE OF THE STOCK? C. IF THE STOCK IS SELLING FOR $100, WHAT SHOULD YOU DO? D. IF THE BETA COEFFICIENT DECLINES TO 1.0, E=WHAT IS THE NEW VALUE OF THE STOCK? E. IF THE PRICE REAMINS $100, WHAT COURSE OF ACTION SHOULD YOU TAKE GIVEN THE VALUATION IN D?arrow_forwardThe most recent dividend paid by company J was 2.45 per share. You think dividends will grow at a constant rate of 2.1% per year-i.e. the next dividend will be greater than the most recent one. Assume that the required rate of return for investors is 6.0%. According to the Dividend Discount Model, what should be price per share?arrow_forward
- Sara Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?arrow_forwardTanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 4% forever. Its stock price is $35.1 and its beta is 1.5. The risk-free rate is 2% and the market risk premium is 4.5%. A. What is the best guess for the cost of equity? Recall that both Dividend Growth Model and CAPM can be used to find cost of equity. Here assume the best guess is the simple average of the two.arrow_forwardYou are evaluating a company's stock. The stock just paid a dividend of $1.75. Dividends are expected to grow at a constant rate of 5 percent for a long time into the future. The required rate of return (Rs) on the stock is 12 percent. What is the fair present value? Please show all the steps, including the equation(s).arrow_forward
- A stock is selling for $50 in the market. The required rate of return is 9%. The most recent dividend paid is D0 = $3.0 and dividends are expected to grow at a constant rate g. What’s the expected capital gain for this stock?arrow_forwardWhat would the CAT stock value be if the constant growth rate were 5% instead of 4%? (The current dividend and the required rate of return are the same as in the previous example, $4.50 and 9.72%, respectively.) $______ (Hint: the growth rate, g, affects both the numerator and the denominator.) The value of the Caterpillar stock (with a $4.50 last-year dividend and a 4% growth rate, as in Example 1) three years from now is expected to be $_____, to the nearest penny. (Hint: to find the value of a constant growth stock expected n years from now, we need a dividend expected one year ahead, in year n+1.)arrow_forwardA stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 8.5%, and the constant growth rate is g = 4.0%. What is the current stock price? Select the correct answer. a. $35.57 b. $36.47 c. $37.37 d. $38.27 e. $34.67arrow_forward
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