1. (20%) FIN307 stock has the following probability distribution of expected prices one year from now: State 1 2 3 Probability .25 .40 Price $50 $60 .35 $70 If you require a risk premium of 5% and Rf is 4%. What is the price you are willing to pay today for FIN307? Assuming the stock will pay a dividend of $4 per share.

1. (20%) FIN307 stock has the following probability distribution of expected prices one year from now: State 1 2 3 Probability .25 .40 Price $50 $60 .35 $70 If you require a risk premium of 5% and Rf is 4%. What is the price you are willing to pay today for FIN307? Assuming the stock will pay a dividend of $4 per share.

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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4. Toyota stock has the following probability distribution of expected prices one year from now: State Probability Price 1 25% £50 40% 35% 2 £60 3 £70 Currently, each share is priced at £55. Toyota will pay a dividend of £4 per share at the end of the year. What is your expected holding-period return on Toyota?
My broker just called and offered to sell me a stock with an expected return of 30% annually. If the risk-free rate is 2% and the expected return on the market is 16%, then how much riskier is this stock than the average stock in the market? Select one: O a. 1.0x (same risk) O b. 2.0x (twice as risky) O c. 2.27x O d. 3.0x Oe. None of the above.
XYZ stock has a current market price of $47.60 a share. the one-year call on XYZ stock with a strike price of $45 is priced at $3.20 whole the one-year put with a strike price of $45 is priced at $0.15. What is the risk-free rate of return?
If the interest rate on T Bills is 2% and the market risk premium is 6%, what is the CAPM-implied expected return on a stock with a beta of 1.25? Enter your answer as a percentage rounded to 2 decimal places.
Crate stock is expected to pay dividends of $1 per share one year from today, and $1.5 per share in year two, and you estimate the value of the stock at the end of year two will be $17.50. What is the most you would be willing to pay for the stock today, if you plan to sell it in two years and if you require a 10% return? O $20.21 O $16.75 $16.90 $16.61.
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Sø. is $75, and a call option expiring in one year has an exercise price, X, of $75 and is selling at a price, C, of $21. With $21,000 to invest, you are considering three alternatives. a. Invest all $21,000 in the stock, buying 280 shares. b. Invest all $21,000 in 1,000 options (10 contracts). c. Buy 100 options (one contract) for $2,100, and invest the remaining $18,900 in a money market fund paying 6% in interest over 6 months (12% per year). What is your rate of return for each alternative for the following four stock prices in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stock prices is: Stock Price All…
5.
4. A stock is about to pay a dividend. You are given (i) The stock's current price is 110. (ii) The stock pays dividends of 2 quarterly. (iii) The continuously compounded risk-free rate is 0.05. Consider an European call optionon the stock expiring in 4 months with strike price 100. An European put option with the same conditions is worth 3.87. Determine the value of the European call option. [Hint: The forward price for a stock with dividends is given by F(t, T) = St-(Present Value of Dividens) Dividens are paid at time 0 and in a 3 month].
AT&T stock has the following probability distribution of expected prices one year from now: State Probability Price 1. 20% $ 15 2. 30% $ 22 3. 50% $ 31 If you buy AT&T today for $19 and it will pay a dividend during the year of $0.8 per share, what is your expected holding-period return on AT&T?
PV = $8.62 J Suppose you are considering buying a stock. You expect the stock to pay a dividend of $3 one year from today, $3.50 two years from today, and then dividend will grow 2% each year after that. Using the CAPM, you estimate your required return at 9% to compensate you for the risk of this stock's cash flows. What is the maximum price you are willing to pay for a share of the stock? LOS Type: Multiple Choice Points Awarded: 0.000/1.000 User Answers): $40.21 Rationale: Feedback Section 8.3. Valuing Stock: The Dividend Discount Model; Example 8.3.3. Find the intrinsic value of a stock with variable dividends PV=PV (Dividend 1 through 2) + PV (Dividend 3 through ∞) = $3.50 +( 1.09 1.00 PV 6.6982 42.03 PV $18.62
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, So. Is $100, and a call option expiring in one year has an exercise price, X, of $100 and is selling at a price, Co. 01 S10. With $10,000 to invest, you are considering three alternatives. Invest all $10,000 in the stock, buying 100 shares. Invest all $10,000 in 1,000 options (10 contracts). Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest. What is your rate of retum for each alternative for the following four stock prices in one year?
Suppose the expected return on the market is 10 percent and the risk-free rate is 5 percent. Solomon Inc. stock has a beta of 1.4. What is the expected return on the Solomon stock? Question 9 options: A) 12.8% B) 19.3% C) 12.0% D) 7.8%

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