Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $47. The stock will pay a dividend at year-end of $2.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.3%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as Follows. Average Premium (Extra return versus Treasury bills) (%) Average Annual Rate of Return (%) Portfolio Treasury bills Treasury bonds 3.8 5.3 1.5 Common stocks 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate % b. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $47. The stock will pay a dividend at year-end of $2.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.3%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as Follows. Average Premium (Extra return versus Treasury bills) (%) Average Annual Rate of Return (%) Portfolio Treasury bills Treasury bonds 3.8 5.3 1.5 Common stocks 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate % b. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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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A firm recently paid a dividend of $2.05 per share, but analysts expect the dividend to decrease by 6% per year. The risk free rate is 1.5% and the market risk premium is 7%. If its beta is 2.25 and the market is in equilibrium what is the value of the stock? (explain your answer) $19.32 $8.82 $11.17 $8.29
"The following table gives the rate of return for a certain mutual fund from 2010 to 2014: Year Rate of Return 2010 -5.9% 2011 11.4% 2012 1.4% 2013 12.7% 2014 6.5% Compute the overall rate of return during this period. Round your answer to the nearest tenth of a percent."
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2020 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.7 Treasury bonds 5.4 1.7 Common stocks 11.5 7.7 What is the discount rate on the stock? Note: Enter your answer as a percent rounded to 2 decimal places. What price should she be willing to pay for the stock today? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Given the following: the Prime is 8.1 %, the FED funds rate is 6.9%, 90 day T-Bills are yielding 5.2%, the average return on all stocks traded on the NYSE is 11.7%, what would be the nominal rate of return?
A stock is selling for $70 and investors expect its price to be $78.4 in one year. During this time the expected market return is 12% and the return on short-term government bonds are 5%. What is the stock's beta?
Do It correctly with step by step explanation.
J.P. Morgan Asset Management publishes information about financial investments. Overthe past 10 years, the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a core bonds fund was5.78% with a standard deviation of 2.13% (J.P. Morgan asset Management, guide to theMarkets, 1st quarter, 2012). The publication also reported that the correlation betweenthe S&P 500 and core bonds is −.32. You are considering portfolio investments that arecomposed of an S&P 500 index fund and a core bonds fund.a. Using the information provided, determine the covariance between the S&P 500 andcore bonds.b. Construct a portfolio that is 50% invested in an S&P 500 index fund and 50% in a corebonds fund. In percentage terms, what are the expected return and standard deviationfor such a portfolio?c. Construct a portfolio that is 20% invested in an S&P 500 index fund and 80% investedin a core bonds fund. In…
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Average Presium (Extra return versus Treasury bills) (%) Average Annual Rate of Return (K) Portfolio Treasury bills Treasury bonds Conmon stocks 3.8 5.3 1.5 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate b. What price should she be willing to pay for the stock today? (Do not round intermedinte calculations. Round your answer to 2 decimal places.) Stock price
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $53. The stock will pay a dividend at year-end of $2.30. Assume that risk-free Treasury securities currently offer an interest rate of 2.3%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Portfolio Treasury bills Treasury bonds Common stocks Discount rate Average Annual Rate of Return (1) 3.8 5.3 11.5 Stock price I a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) % Average Premium (Extra return versus Treasury bills) () 1.5 7.7 b. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently 3.5 percent, and the expected return for the market portfolio is 9.5 percent. What should be the expected rates of return for each investment? Security ABCO D Beta 1.57 0.76 1.35 0.89 a. The expected rate of return for security A, which has a beta of 1.57, is %. (Round to two decimal places.)
Historical stock returns show that small - company stocks produced an average return of 17.4 percent, inflation averaged 3.1 percent, U.S. Treasury bills returned an average 3.8 percent, and long - term corporate bonds returned 6.2 percent. What was the risk premium on small - company stocks for that period?
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Portfolio Treasury bills Treasury bonds Common stocks 3.8 5.3 1.5 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate b. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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