You have gathered the following information on Stocks A & B. Assuming the stock market is efficient, and the stocks are in equilibrium, which of the following is correct? STOCK Require A 12% d Return Market Price Expecte d Dividen d Growth O These two stocks must have the same expected year-end dividend $25 B 7% 14% $20 9% O These two stocks must have the same dividend yield O These two stocks must have the same expected capital gains yield These two stocks should have the same expected return These two stocks should have the same price

You have gathered the following information on Stocks A & B. Assuming the stock market is efficient, and the stocks are in equilibrium, which of the following is correct? STOCK Require A 12% d Return Market Price Expecte d Dividen d Growth O These two stocks must have the same expected year-end dividend $25 B 7% 14% $20 9% O These two stocks must have the same dividend yield O These two stocks must have the same expected capital gains yield These two stocks should have the same expected return These two stocks should have the same price

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 10P

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Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Required return 10% 12% Market price $25 $40 Expected growth 7% 9% a. These two stocks must have the same dividend yield. b. These two stocks should have the same expected return. c. These two stocks must have the same expected capital gains yield. d. These two stocks must have the same expected year-end dividend. e. These two stocks should have the same price.
Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Price Expected growth (constant) Required return X O b) $50 5% 10% Y $50 6% 11% a) Stock Y has a higher dividend yield than Stock X. One year from now, Stock X's price is expected to be higher than Stock Y price. c) Stock X has the higher expected year-end dividend. d) Stock Y has a higher capital gains yield. e) Stock X has a higher dividend vield than Stock V
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?
he table below shows information for 3 stocks. Security Beta Risk-free rate Expected market return Stock 1 1.9 0.02 0.09 Stock 2 1.2 0.035 0.09 Stock 3 0.2 0.015 0.09 The risk-free rates are different because they were measured in different years. Calculate the expected (or required) return for each stock, using the Capital Asset Pricing Model (CAPM). What is the required return for stock 1? What is the required return for stock 2? What is the required return for stock 3?
Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? X Y Price $25 $25 Expected dividend yield 5% 3% Required return 12% 10% a. Stock Y pays a higher dividend per share than Stock X. b. Stock Y has the higher expected capital gains yield. c. One year from now, Stock X should have the higher price. d. Stock X pays a higher dividend per share than Stock Y.
(Expected rate of return and risk) Syntex, Inc is considering an investment in one of two common stocks Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and retum? Common Stock A Probability 0.25 0,50 0:25 Common Stock B Return 10% 17% 10% Probability 0.10 0:40 0:40 010 (Click on the soon in order to copy its contents into a spreadsheet) Return -6% 8% 15% 20% COD a. Given the information in the table the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is 4 36% (Round to two decimal places)
Consider the following stocks with equal probabilities of return: Outcome | Return (Stock A) | Return (Stock B) 1 -5% 2% 2 10% 12% 3 18% 15% Compute the expected returns of stock A and B. Compute the total risk and relative risk of stock A and B. Which stock is risky? Ignoring the probabilities, what is the total risk and relative risk of stock A and B? Which stock is risky? Round-off final answers only to two decimal places.
Using the data in the chart, calculate the first-period rates of return on the following indexes of the three stocks: A market-value-weighted index. An equally weighted index. stocks P0 Q0 P1 Q1 P2 Q2 A 90 100 95 100 95 100 B 50 200 45 200 45 200 C 100 200 110 200 55 400 (Pt represents price at time t, and Qt represents shares outstanding at time t.)
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $40 Expected growth 7% 9% Expected return 10% 12% a. The two stocks could not be in equilibrium with the numbers given in the question. b. A's expected dividend is $0.50. c. B's expected dividend is $0.75. d. A's expected dividend is $0.75 and B's expected dividend is $1.20. e. The two stocks should have the same expected dividend.
Give the return of the stock in which you would most likely invest and show the preferred order of the stocks if you were considering further investment, all other things being equal. Stock Beta Risk-Free Market-Rate CA-K 0.95 5.5% 9% AU-L 1.05 6% 8.5% TT-M 1.10 5% 8%
Consider the three stocks in the following table. Pe represents price at time t, and Qe represents shares outstanding at time t Stock C splits two for one in the last period. Stock A B С PO 80 85 35 20 275 650 950 a. Rate of return b. New divisor c. Rate of return P1 85 80 50 01 275 650 950 % P₂ Required: a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t=0 to t= 1). Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. Calculate the new divisor for the price-weighted index in year 2. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. Calculate the rate of return for the second period (t=1 to t=2). Note: Round your answer to 2 decimal places. % 85 80 25 02 275 650 1,900
Consider the three stocks in the following table. Pt represents price at time t, and ot represents shares outstanding at time t. Stock C splits two for one in the last period. Stock Po P1 21 75 65 75 75 75 55 150 50 150 50 150 110 150 115 150 60 300 A B с с 20 75 P2 a. Rate of return b. Rate of return Required: Calculate the first-period rates of return on the following indexes of the three stocks (t=0 to t= 1): Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a. A market-value-weighted index. b. An equally weighted index. 22 % %