Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) and has a beta of 0.9. The risk-free rate is 4.6%, and the market risk premium is 5.5%. Justus currently sells for $31.00 a share, and its dividend is expected to grow at some constant rate, g. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

 

 
Open spreadsheet

 

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 ?) Round your answer to two decimal places. Do not round your intermediate calculations.

$  fill in the blank 2

123
File
B11
45
5
<>
Assignments - you can access...
template Saved ✓
Home Insert Draw
Constant growth
A
Arial
Expected year-end dividend (D₁)
Beta coefficient
Risk-free rate (TRF)
6 Market risk premium (RPM)
7 Current stock price (Po)
Market in equilibrium
fx
8
9
10
Calculate
return:
11 Required return on common stock
12
13 Calculate constant growth rate, g:
14 Total return on common stock
15 Expected dividend yield
16 Expected capital gains yield
17
Workbook Statistics
18 Calculate stock price in 3 years, P3:
19 Number of years from today
20 Calculate P3 using Po
21
22 Alternative calculation:
23 Calculate P3 using dividends
24
25
26
27
28
29
30
31
32
33
<
Sheet1 +
MindTap - Cengage Learning
Page Layout
V 10
B
$1.75
0.90
4.60%
5.50%
$31.00
Yes
3
B
C
about:blank
Formulas Data
D
Formulas
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
Mind Tap - Cengage Learning
V
Review View
Search for tools, help, and more (Option + Q)
E
Help
ab
F
G
Excel Online Student Work
H
J
>
K
b Answered: you have observed t...
:
M
N
O
C https://www.chegg.com/homew...
Editing ✓
P
Give Feedback to Microsoft
+
Comments
T
R
100% +
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Transcribed Image Text:123 File B11 45 5 <> Assignments - you can access... template Saved ✓ Home Insert Draw Constant growth A Arial Expected year-end dividend (D₁) Beta coefficient Risk-free rate (TRF) 6 Market risk premium (RPM) 7 Current stock price (Po) Market in equilibrium fx 8 9 10 Calculate return: 11 Required return on common stock 12 13 Calculate constant growth rate, g: 14 Total return on common stock 15 Expected dividend yield 16 Expected capital gains yield 17 Workbook Statistics 18 Calculate stock price in 3 years, P3: 19 Number of years from today 20 Calculate P3 using Po 21 22 Alternative calculation: 23 Calculate P3 using dividends 24 25 26 27 28 29 30 31 32 33 < Sheet1 + MindTap - Cengage Learning Page Layout V 10 B $1.75 0.90 4.60% 5.50% $31.00 Yes 3 B C about:blank Formulas Data D Formulas #N/A #N/A #N/A #N/A #N/A #N/A Mind Tap - Cengage Learning V Review View Search for tools, help, and more (Option + Q) E Help ab F G Excel Online Student Work H J > K b Answered: you have observed t... : M N O C https://www.chegg.com/homew... Editing ✓ P Give Feedback to Microsoft + Comments T R 100% +
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