EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 8, Problem 19P
Summary Introduction
To determine: Probability earning a return greater than 30% over investment on stock.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The current (time zero) price of one share of farell corporation's common stock is $25. The price is expected to increase by $5 over the coming year. The company is not expected to pay a dividend during the year. The standard deviation of the expected price change is $3. The distribution of the end of year possible prices is approximately normal. Determine the probability of earning a return greater than 30 percent over the coming year from your investment in farell common stock.
A hypothetical investment in a single stock initially costs $100. One year later, the stock is trading at $200. At the end of the second year, the stock price falls to $100. No dividends are paid in-between. Calculate the geometric and arithmetic mean annual returns for the stock.
Suppose that your estimates of the possible one-year returns from investing in the common stock of the AYZ Corporation were as follows:
Â
Probability of occurrence
0.15
0.25
0.3
0.15
0.15
Possible return
-10%
5%
20%
35%
50%
Â
What are the expected return?
Calculate the standard deviation?
Chapter 8 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 8 - Prob. 1QTDCh. 8 - Prob. 2QTDCh. 8 - Prob. 3QTDCh. 8 - Prob. 4QTDCh. 8 - Prob. 5QTDCh. 8 - Prob. 6QTDCh. 8 - Prob. 7QTDCh. 8 - Prob. 8QTDCh. 8 - Prob. 9QTDCh. 8 - Prob. 10QTD
Ch. 8 - Prob. 11QTDCh. 8 - Prob. 12QTDCh. 8 - Prob. 13QTDCh. 8 - Prob. 14QTDCh. 8 - Prob. 15QTDCh. 8 - Prob. 16QTDCh. 8 - Prob. 17QTDCh. 8 - Prob. 18QTDCh. 8 - Prob. 19QTDCh. 8 - Prob. 20QTDCh. 8 - Prob. 21QTDCh. 8 - Prob. 1PCh. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- William Brown is interested in purchasing the common stock of Oriole, Inc., which is currently priced at $35.56. The company is expected to pay a dividend of $2.58 next year and to increase its dividend at a constant rate of 6.60 percent. What should the market value be if the required rate of return is 14 percent? - Market value of stock $arrow_forwardBest Corporation is expected to pay $.60 next year and $1.10 the following year and $1.25 each year thereafter. If the required return is .14, what is the priice of the stock? $7.40 $2.95 $8.24 $2.22arrow_forwardThe stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $2.00 1.00 0.50 a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock Price $50 43 34 Expected return Standard deviation % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %arrow_forward
- You buy a share of Damanpour Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1149, and $1.2250 in Years 1, 2, and 3 respectively. You also expect to sell the stock at a price of $26.22 at the end of three years. a. Calculate the growth rate in dividends. b. Calculate the expected dividend yield. c. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to determine the expected total rate of return. What is this stock's expected total rate of return?arrow_forwardThe stock of Nogro Corporation is currently selling for $29 per share. Earnings per share in the coming year are expected to be $3.90. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 21% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require (round to 2 decimal places)? Rate of Return ?% b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested (round to 2 decimal places)? PVGO $?arrow_forwardThe common stock of PG paid RM1.32 in dividends last year. Dividends are expected togrow at an 8 percent annual rate for an indefinite number of years.a. If PGâs current market price is RM23.50 per share, what is the stockâs expected rate of return? b. If your required rate of return is 10.5 percent, what is the value of stock for you?c. Should you make the investment?arrow_forward
- Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.52, $1.58, and $1.60 a share over the next three years, respectively. After that, the dividend will be constant at $1. 79 per share per year. What is the market price of this stock if the market rate of return is 10.0 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forwardThe stock of Nogro Corporation is currently selling for $28 per share. Earnings per share in the coming year are expected to be $7.00. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 25% rate of return per year. This situation is expected to continue indefinitely. Required: Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogroâs investors require? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price? Note: Round your answer to 2 decimal places. What would happen to itsâŚarrow_forwardWhizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2% per year and the investors require a return of 12%. i) Compute the current stock price for Whizcom Inc.ii) What would be the likely stock price in year 5?iii) What would be per annum rate of return implied by a change in prices from time 0 to time 5?arrow_forward
- Assume that you are considering purchase of common stock issued by REC Corporation. Your research has shown that the dividends are paid regularly on a semiannual schedule. The most recent (past) semiannual dividend paid was D0 = $12 per share. In the future, dividends are expected to grow at an annual rate of 4%. You have determined that your required rate of return (discount rate) for this stock would be 6.5% per year. NOTE: $12 is the amount that was paid semiannually. It does not need to be divided by two.  Based on this information, answer the following:  A. What are the next four upcoming dividends for this common stock (i.e., D1, D2, D3, D4)?  B. Using the Discounted Cash Flow Method, what is the value of this common stock?  C. Assume that the current market price of this common stock is $325 per share. At this price, what is the stock's annual expected return according to the Discounted Cash Flow Method?  D. Based on your answer to part B, would you invest inâŚarrow_forwardThe Manning Company's stock is currently selling for $23. It has the following prospects for next year:                        Next year's            Stock Price     Dividend            Probability               $25             $1.00                 .25               $30             $1.50                 .50               $35             $2.00                 .25      Calculate Manning's expected return for a one-year holding period.arrow_forwardCanPro Co. is expecting that its dividend for this coming year will be $1.2 a share and that all future dividends are expected to increase by 3 percent annually. What is the required return of this stock if the current market price of the stock is $17?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY