Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant growth rate of 12%. Your required return on this stock is 15%. From a strict valuation standpoint, you should: A. Buy the stock; it is fairly valued. B. Buy the stock; it is undervalued by $5.67 C. Buy the stock; it is undervalued by $.13. D. Not buy the stock; it is overvalued by $5.67 E. Not buy the stock; it is overvalued by $.13

Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant growth rate of 12%. Your required return on this stock is 15%. From a strict valuation standpoint, you should: A. Buy the stock; it is fairly valued. B. Buy the stock; it is undervalued by $5.67 C. Buy the stock; it is undervalued by $.13. D. Not buy the stock; it is overvalued by $5.67 E. Not buy the stock; it is overvalued by $.13

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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You have just inherited DKK 20,000, which you are going to invest in stocks. You are considering two stocks, DJH and SDR. The two stocks have the following returns during economic growth and economic recession: Economic growth Economic recession Stock DJH 0% 10% Stock SDR 15% -5% Growth and recession are equally likely. a) What is the expected return and standard deviation for stocks DJH and SDR? b) You consider buying both stock DJH and SDR. What is the expected return and standard deviation of your portfolio if you: ba. Invest DKK 6,000 in DJH and DKK 14,000 in SDR? bb. Invest DKK 10,000 in DJH and DKK 10,000 in SDR? bc. Invest DKK 14,000 in DJH and DKK 6,000 in SDR? bd. Invest DKK 18,000 in DJH and DKK 2,000 in stock SDR?
You are about to invest in Terrali ltd and the company’s stock’s return has the following distribution: Demand for the Probability of this Rate of Return if the Company’s products Demand occurring Demand occurs Weak 0.1 (50%) Below average 0.2 (5%) Average 0.4 16% Above average 0.2 25% Strong 0.1 60% 1.0 REQUIRED: (a) Calculate the stock’s: Expected return. Standard deviation. (b) Distinguish between the expected return from the required return.
1. You consider buying a share of stock at a price of $25. The stock is expected to pay a dividend of $1.50 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $30. The stock's beta is 1.1, rf is 6%, and market risk premium is 10%. What is the stock's alpha?
A stock is currently selling for $40.00 a share. What is the gain or loss on the following transactions? Use a minus sign to enter the amount as a negative value. Round your answers to the nearest cent. a. You take a long position and the stock's price declines to $37.35. -10.65 b. You sell the stock short and the price declines to $37.35. 10.65 c. You take a long position and the price rises to $50.65. $ 2.65 d. You sell the stock short and the price rises to $50.65. -2.65
You 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).
You purchased a stock at the beginning of the year for $32 and have just received a dividend of $2. You are now thinking of selling the stock for $24. What was your realized return?
b) Your broker has advised you to buy shares of Fast repair computer repair shop, which has paid a dividend of $2 per share annually and will (according to the broker) continue to do so for many years. The stock is currently priced at $18. You have good reason to think that the appropriate rate of return for this stock is 13% per year. Is the stock's present price a good approximation for the true financial value? What would you like to pay for the share and should you buy or sell now?
Suppose you are thinking of purchasing the Moore Co.’s common stock today. If you expect Moore to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?
Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $48.97 per share. She expects the price of the stock to rise to $58 35 over the next 3 years. During that time she also expects to receive annual dividends of $3.51 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 9%? b. What is its expected return? a. The intrinsic worth of this stock is $. (Round to the nearest cent.)
You are considering the purchase of a new stock. The stock is expected to grow at 2.52% for the foreseeable future and just paid a $2.88 dividend (D0). The required return is 8.2%. Based on this, what is the value of the stock? Round calculations to the nearest cent.
You are considering an investment in General Electric’s common stock. The stock is expected to pay a dividend of $5 a share at the end of this year; its beta is 0.9; the risk-free rate is 5.6%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $25 a share. Assuming the market is in equilibrium, what the market believes will be the stock’s price at the end of 3 years &5 Years?
1. You think MBB stock has potential for an upward move in price. You have no position whatsoever in the stock now. You would like to take opportunity of any up movement in price but want to strictly limit your downside risk. MBB stock price now is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. For each strategy, • State the position • Graph the strategy • Outline the risk profile, and • State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day put 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40 b. From a cost viewpoint, which is the best strategy? explainc. What are the recommended options strategies when you expect the markethas extreme (high) volatility? explain

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