Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Given information:
Stock price is $47
Year-end dividend is $2.00
Risk free rate is 2.3%
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- Currently the S&P is returning 11% while Treasury bonds are returning 2%. If a stock has a beta of 1.3 and an expected return of 7%, what is the required return for this stock?arrow_forwardAccording to the Bloomberg Network (a Financial TV channel), the current return on the U.S T-bill is 4.0% and the market risk premium is 8.5%. Given this news, in the table below, the only stock that is correctly priced is: See attached table a. Stock E b. Stock C c. Stock B d. Stock A e. Stock Darrow_forwardFinancial analysts forecast Wal-Mart Stores (WMT) growth for the future to be 12.00 percent. Their recent dividend was $1.93. What is the value of their stock when the required rate of return is 17.00 percent?arrow_forward
- Use the data in the tables below to answer the following questions: Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017. Average Premium Portfolio Treasury bills Treasury bonds Common stocks Average Annual Rate of Return (%) (Extra return versus Treasury bills) (%) 3.8 5.3 11.5 1.5 7.7 Standard deviation of returns, 1900-2017. Standard Portfolio Deviation (%) Treasury bills 2.9 Long-term government bonds 9.0 Common stocks 19.7 a. What was the average rate of return on large U.S. common stocks from 1900 to 2017? b. What was the average risk premium on large stocks? c. What was the standard deviation of returns on common stocks? (Enter your answer as a percent rounded to 1 decimal place.) a. Average rate of return 11.5 % b. Average risk premium 7.7 % C. Standard deviation of returns 19.7 %arrow_forwardThe returns on small company stocks are 10.7%, U.S. Treasury bill offer a 1.5% return and a bank savings account offers an 1.3% return. What is the risk premium on small company stocks?arrow_forwardTwo stocks each currently pay a dividend of $1.90 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 6 percent. Firm A has a beta coefficient of 1.08 while the beta coefficient of firm B is 0.83. If U.S. Treasury bills currently yield 2.4 percent and you expect the market to increase at an annual rate of 8.2 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your answers to two decimal places. Stock A: $ Stock B: $ Why are your valuations different? The beta coefficient of (stock A or stock B) is higher, which indicates the stock's return is (less or more ) volatile. If stock A’s price were $55 and stock B’s price were $46, what would you do? Stock A is - (undervalued or overvalued) Iand (should or Should not) be purchased. Stock B is (undervalued or overvalued) and (should orshould notI) be purchased.arrow_forward
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