Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 8, Problem 26SP
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To determine: Whether person X would purchase the stock.
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You are planning to purchase 100 shares of preferred stock and must choose between stock A and stock B.Stock A pays an annual dividend of $4.50 and is currently selling for $35.Stock B pays an annual dividend of $4.25 and is currently selling for $36.If your required return is 12%, which stock should you use?
(Preferred stock valuation) Pioneer's preferred stock is selling for $30 in the market and pays a $3.30 annual dividend.
Chapter
a. If the market's required yield is 9 percent, what is the value of the stock for that investor?
b. Should the investor acquire the stock?
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a. The value of the stock for that investor is $
per share. (Round to the nearest cent.)
b. Should the investor acquire the stock? (Select from the drop-down menus.)
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The investor
acquire the stock because it is currently
V in the market.
Chapter 1
should not
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You purchase 100 shares of stock for $40 a share. The stock pays a $4 per share dividend at year-end.
a. What is the rate of return on your investment if the end-of-year stock price is (i) $36; (ii) $40; (iii) $44? (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.)
b. What is your real (inflation-adjusted) rate of return if the inflation rate is 8%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)
Chapter 8 Solutions
Foundations Of Finance
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Define investors expected rate of return.Ch. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - (Preferred stock valuation) What is the value of a...Ch. 8 - (Preferred stock valuation) The preferred stock of...
Ch. 8 - Prob. 3SPCh. 8 - Haney, Inc.s preferred stock is selling for 33 per...Ch. 8 - Calculate the value of a preferred stock that pays...Ch. 8 - You are considering an investment in one of two...Ch. 8 - You are considering an investment in Minnix...Ch. 8 - Mosser Corporations common stock paid 1.32 in...Ch. 8 - The Cammack Corporation wants to achieve a steady...Ch. 8 - (Common stock valuation) Dalton Inc., has an 11.5...Ch. 8 - (Common stock valuation) Bates, Inc. pays a...Ch. 8 - You intend to purchase Dorchester common stock at...Ch. 8 - (Common stock valuation) Herrera Motor, Inc. paid...Ch. 8 - (Measuring growth) Given that a firms return on...Ch. 8 - (Common stock valuation) Sanfords common stock is...Ch. 8 - (Common stock valuation) The common stock of NCP...Ch. 8 - (Measuring growth) Septian, Inc.s return on equity...Ch. 8 - Prob. 18SPCh. 8 - Prob. 19SPCh. 8 - (Preferred stockholder expected return) You own...Ch. 8 - (Preferred stock expected return) You are planning...Ch. 8 - (Preferred stockholder expected return) Zust...Ch. 8 - (Preferred stockholder expected return) You own...Ch. 8 - Prob. 24SPCh. 8 - Prob. 25SPCh. 8 - Prob. 26SPCh. 8 - Prob. 27SPCh. 8 - (Common stockholder expected return) Alyward ...Ch. 8 - (Common stockholder expected return) Bennett,...Ch. 8 - (Common stockholder expected return) The common...Ch. 8 - (Common stockholder expected return) The market...Ch. 8 - Prob. 32SPCh. 8 - Prob. 33SPCh. 8 - Prob. 2MCCh. 8 - Assume Emerson Electrics managers expect earnings...Ch. 8 - Prob. 4MC
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- (Preferred stock valuation) Pioneer's preferred stock is selling for $42 in the market and pays a $2.50 annual dividend. a. If the market's required yield is 8 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock?arrow_forwardA preferred stock from Duquesne Light Company (DQU-PRA) pays $2.10 in annual dividends. If the required rate of return on the preferred stock is 5.4 percent, what is the fair present value of the stock? Please show the solution/ formula used for me so i'll be able to understand it clearly. Thank youarrow_forwardAssume you purchase a share of stock for $50 at time t=0, and another share at $65 at time t= 1, and at the end of year 1 and year 2, the stock paid a $2.00 dividend. Also, at the end of year 2 you sold both shares for $70 each. What is the time-weighted rate of return? Give typing answer with explanation and conclusionarrow_forward
- You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $44? (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.) Stock Price Rate of Return 38 40 % 44 %arrow_forwardA certain stock pays dividends of $0.25$0.25. How much would you receive if you owned 2020 shares? Round your answer to the nearest cent, if necessary.arrow_forwardSuppose you purchase one share of the stock of Red Devil Corporation at the beginning of year 1 for $46.50. At the end of year 1, you receive a dividend of $2, and buy one more share for $50.50. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share), and sell the shares for $58.50 each. What is the time-weighted return on your investment? (Round your answer to 2 decimal places. Do not round intermediate calculations.)arrow_forward
- You purchase 100 shares of stock for $25 a share. The stock pays a $1 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (i) $24; (ii) $25; (ii) $28? (Leave no cells blank - be certain to enter "O" wherever required. Enter your answers as a whole percent.) Stock Price Rate of Return 24 % 25 % 28 % b. What is your real (inflation-adjusted) rate of return if the inflation rate is 2%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.) Stock Price Real Rate of Return 24 % 25 % 28 %arrow_forwardPioneer's preferred stock is selling for $44 in the market and pays a $3.10 annual dividend. a. If the market's required yield is 8 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock?arrow_forward(please use Excel) Preferred stock B sells for $45 in the market and pays an annual dividend of $4.60.a) If the market required yield is 10 percent, what is the value of the stock to investors?b) Should investors buy the shares? Include reasonsarrow_forward
- Brandon Corp. preferred stock is selling for $90 per share in the market. This preferred stock has a par value of $80 and a dividend rate of 10 percent Required: What is the current yield on the stock? If an investor has a required rate of return of 6 percent, what is the value of the stock for that investor? Should the investor acquire the stock?arrow_forwardAssume that you own a dividend-paying stock currently worth $150. You plan to sell the stock in 250 days. In order to hedge against a possible price decline, you wish to take a short position in a forward contract that expires in 250 days. The risk-free rate is 5.25 percent. Over the next 250 days, the stock will pay dividends according to the following schedule: Days to Next Dividend Dividends per Share (S) 30 1.25 120 1.25 210 125 A. Calculate the forward price of a contract established today and expiring in 250 days. B. It is now 100 days since you entered the forward contract. The stock price is $115. Calculate the value of the forward contract at this point. C. At expiration, the price of the stock is $130. Calculate the value of the forward contract at expiration.arrow_forwardA stock will pay a $1 dividend next year, a $2 dividend the year following, and a $3 dividend in year 3, at which time it will be acquired for $12 per share. If investors require a 12% return, what is the current value of the stock? (Round to the nearest cent and do not enter a dollar sign)arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY