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The risk-free
a. What is the intrinsic value of a share of Xyrong stock?
b. If the market price of a share is currently
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Chapter 13 Solutions
Essentials Of Investments
- The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on all reinvested earnings forever. Required: a. What is the intrinsic value of a share of Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. > Answer is complete but not entirely correct. $ a. Intrinsic value b. Expected one-year holding-period return 99.41 11.05 X…arrow_forwardWeber Integrated Systems Inc. is expected to pay a year-end dividend of $0.90 per share (i.e. D1 = $0.90), and that dividend is expected to grow at a constant rate of 4.00% per year in the future. The company's beta is 1.20, the market risk premium is 5.00 %, and the risk - free rate is 4.00 % . What is the company's current stock price? a. $15.00 b. $15.60 c. $16.33 d. $17.77 e. $ 18.20arrow_forwardPortman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year. The risk-free rate (rRFrRF) is 4.00%, the market risk premium (RPMRPM) is 4.80%, and Portman’s beta is 2.00. What is the dividents one year from now? What is the Horizon value? What is the Intrinsic value?arrow_forward
- A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company's dividend will grow at a rate of 24% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.1, the risk-free rate is 6.5%, and the market risk premium is 3.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardThe risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on all reinvested earnings forever. Required: What is the intrinsic value of a share of Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.arrow_forwardA company currently pays a dividend of $2 per share, D0 = $2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?arrow_forward
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- Macro Systems just paid an annual dividend of $0.32 per share. Its dividend is expected to double for the next four years (D1 through D4), after which it will grow at a more modest pace of 1% per year. If the required return is 13%, what is the current price?arrow_forwardXYZ common just paid an annual dividend of $6.00. Dividends are expected to grow at a constant annual rate of 7.6%. Currently, the risk-free rate is 5.5% and the required rate of return on the market is 12%. What is the highest price that you would pay for XYZ common given its beta of 1.6? O $57.16 $81.45 $77.78 $68.51.arrow_forwardVictoria Company’s beta is exactly 2, and the market risk premium is 8%, with a risk-free rate of 4%. The company’s most recent dividend was $5 per share, and the dividend is expected to grow at 15% for the next three years and then grow at 6% per year indefinitely. If all the expectations stay the same as stated, what would the share price be a year from now? What would be your capital gain if you owned a share for the year? Show that this gain is consistent with the expected dividend yield calculated above.arrow_forward
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