A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $ Hint: [CAPM] Expected Return (R) = R₁ + Beta*Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield= D₁/Po and capital gains yield = (P₁-Po)/Po

A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $ Hint: [CAPM] Expected Return (R) = R₁ + Beta*Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield= D₁/Po and capital gains yield = (P₁-Po)/Po

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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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?
Suppose that a firm with a stock price of $80 just announced that it expects to pay a $100 per share liquidating dividend in 1 year, although the exact amount of the dividend depends on the performance of the company this year. Assume that the CAPM is a good description of stock price returns and that the stock’s beta is 1.5, the market’s expected return is 12%, and the risk-free rate is 5%. 1) Is the stock priced correctly now? 2) What is the alpha of the stock? 3) What would you expect to happen to the stock price in an efficient market after the announcement? Give typing answer with explanation and conclusion
A stock is expected to pay a dividend of $0.50 at the end of the year (i.e., D1 = $0.50), and it should continue to grow at a constant rate of 10% a year. If its required return is 14%, what is the stock's expected price 1 year from today? Do not round intermediate calculations. Round your answer to the nearest cent.
A share of stock with a beta of 0.78 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%. a. Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? Complete this question by entering your answers in the tabs below. Required A Required B Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? Note: Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 decimal places. Opportunity cost of capital The stock is a bad buy and the investors will t invest %
4.StockA 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: Probability Stock Price Boom $50 Normal economy 42 Recession 30 50% 30% 20% Dividend $2.00 1.00 0.50 a.Calculate the expected holding-period return and standard deviation of the holding period return. b.Calculate the expected return and standard deviation of a portfolio invested half in this stock and half in Treasury bills. The return on bills is 4%.
You are considering an investment in the common stock of Remi's Sporting Goods. The stock is expected to pay a dividend of $1.80 a share at the end of the year (D1=1.80). The stock has a beta of 0.8. The risk-free rate is 4.5%, and the market expected return is 8.0%. The stock's dividend is expected to grow at some constant rate g. The stock currently sells for $24 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 4 years?
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 9%. What is the stock's current price? Select the correct answer. a. $46.00 b. $48.00 c. $47.00 d. $50.00 e. $49.00
Visa, Inc. (V) has a beta of 1.08, is selling for $56.72, and will pay a $2.35 dividend at the end of the year. If the stock is priced at $57.15 at year-end, it is __________, so __________ it. Assume the risk-free rate is 3.05%, and the expected market return is 3.92%. A. underpriced / sell B. underpriced / buy C. overpriced / sell D. fair-valued / hold
A corpus expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). the stock sells for 27.50 per share and it's required return is 9.75 the dividend is expected to grow at some constant rate forever. what is the equilibrium expected growth rate?
A stock is expected to pay a dividend of $1.40 at the end of the year. The required rate of return is 8.50%, and the expected constant growth rate is g = 5.00%. What is the stock's current price? Group of answer choices 40.00 16.47 28.00 36.00 10.37
Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $22.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? Question 2 options: 5.88% 4.25% 4.30% 4.90% 4.94%
A stock is currently selling for $90.60 per share in the market. If the stock is forecasted to pay a dividend of $10.57 per share in one year and investors require a rate of return of 15.85 percent per year, what constant growth rate must apply to this security? Group of answer choices 15.85% 4.18% 15.81% 11.67% 5.02% please answer fast i give upvote.

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