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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Question
Transcribed Image Text:You are valuing a bank. The bank currently has assets of $330 per share. Five years from now (that is, at the
end of five years), you expect their assets per share to be $470. After Year 5, you expect their assets per
share to grow at 3.25 percent per year forever. The bank has an ROA of 2.0 percent and an ROE of 13.0
percent. The bank's cost of equity is 11.5 percent. What is the value of the bank's stock? Use the free cash
flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the
nearest cent.
69
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