AC&DC Company will be worth $135 per share one year from now. This company has a beta of 2.3. The risk-free rate is 5.5% and the market risk premium is 7.0%. Assuming CAPM holds and AC&DC does not pay dividends, how much are you willing to pay for one share today? Show your workings and round your final answer to two decimal places.

AC&DC Company will be worth $135 per share one year from now. This company has a beta of 2.3. The risk-free rate is 5.5% and the market risk premium is 7.0%. Assuming CAPM holds and AC&DC does not pay dividends, how much are you willing to pay for one share today? Show your workings and round your final answer to two decimal places.

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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Suppose you have $60,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $100 per share. You also notice that a call option with a strike price of $100 and six months to maturity is available. The premium is $5. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $106 per share? What about $96 per share?
PeteCorp's stock has a Beta of 1.37. Its dividend is expected to be $3.19 next year, and will grow by 5% per year after that indefinitely. Assume the risk-free rate is 5%, and the Market Risk Premium is 7%. The stock price would currently be estimated to be $________. Round your FINAL answer to 2 decimal places (example: 12.3456 = 12.35), but do NOT round any intermediate work.
Solve this question
The next dividend payment by Circular Bubbles Inc., will be $12.34 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $60 per share, what is the required return?
A share of stock sells for $48 today. The beta of the stock is 1.3 and the expected return on the market is 16 percent. The stock is expected to pay a dividend of $.70 in one year. If the risk-free rate is 4.7 percent, what should the share price be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You are about to purchase OSTK, which is currently trading at $20 per share. You have $5,000 of your own to invest. You borrow an additional $5,000 from your broker and invest $10,000 in the stock. How far does the stock price have to fall for you to get a margin call if the maintenance margin requirement is 35%?
Assume that you are in a perfect Modigliani-Miller world (no taxes, no bankruptcy costs, etc.). A firm has pledged to pay a $10 dividend per share every year, forever. Its cost of equity is 10 percent. You are considering whether to buy the share today at the current market price, receive the next dividend (which is due tomorrow), and sell the share in exactly a year from today. What do you expect your return on this strategy to (approximately) be? Group of answer choices 9 percent 11 percent 10 percent 20 percent 5 percent
Suppose you are thinking of purchasing the Moore Co.’s common stock today. If you expect Moore to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?
You are selling short 1000 shares of company A, which is currently selling its shares for $100/share. This company is paying a dividend of 0.8$ per share. The initial margin is 50%. Set the initial balance sheet. • Set the balance sheet in case the price goes up 20% If the maintenance margin is 40%, how much can the price increase before the investor would get a margin call? What will be the rate of return if the price of the stock fell to 90$? What will be the rate of return in case the price increases to 120$?
You are considering purchasing stock in a company that is expected to pay a $ 3.34 dividend later this year and you require a return of 7.79%. Assume the dividend will continue to be paid each year thereafter and will grow every year as described below. C What is the maximum price you would be willing to pay if you expect a growth rate of 2%? $ 58.84 (Enter as a whole number with two decimal places, such as 10.19.) What is the maximum price you would be willing to pay if you expect a growth rate of 5%? $ 125.70 What is the maximum price you would be willing to pay if you expect a growth rate of 7%? $452.38 What is the relationship between the price of a stock and the firm's growth rate? O A. The stock price is exactly equal to the growth rate times the dividend. B. As the growth rate investors expect increases, the price they are willing to pay also increases. OC. As the growth rate investors expect increases, the price they are willing to pay decreases. O D. There is no relationship.
Dietterich Electronics wants its shareholders to earn a return of 15% on their investment in the company. At what price would the stock need to be priced today if Dietterich Electronics had a a. $0.20 constant annual dividend forever? b. $0.90 constant annual dividend forever? c. $1.80 constant annual dividend forever? d. $2.80 constant annual dividend forever?
You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) and has a beta of 0.9. The risk-free rate is 4.6%, and the market risk premium is 5.5%. Justus currently sells for $31.00 a share, and its dividend is expected to grow at some constant rate, g. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Round your answer to two decimal places. Do not round your intermediate calculations. $ fill in the blank 2

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