An investor plans to buy a stock for $165 and keep it for 8 years. This stock pays $10/share dividend per year (Dividend=amount of profits that the company that sells the stock pays to the stockholders every year). There are 3 equally likely outcomes of the sale price of this stock after the 8 years: Comppany will do very well and the stock will sell for $245. Compnay will in essense maintain its value and the stock will sell for the same as purchase price (i.e., $165) Company will do poorly and its stock value will drop to $145. Compute the internal rate of return for each of the 3 scenarios and its average value. 3.

An investor plans to buy a stock for $165 and keep it for 8 years. This stock pays $10/share dividend per year (Dividend=amount of profits that the company that sells the stock pays to the stockholders every year). There are 3 equally likely outcomes of the sale price of this stock after the 8 years: Comppany will do very well and the stock will sell for $245. Compnay will in essense maintain its value and the stock will sell for the same as purchase price (i.e., $165) Company will do poorly and its stock value will drop to $145. Compute the internal rate of return for each of the 3 scenarios and its average value. 3.

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

See similar textbooks

Similar questions

You are trying to decide whether to invest in a "value" stock (Hawaii Utility Co.) or a "growth" stock (HI Tech Co.). Hawaii Utility Co. currently pays a dividend of $5 per share per year, and you expect that dividend to grow by 1% per year forever (e.g., $5.05 next year). Its price is $125. HI Tech Co. currently pays a dividend of just $1 per share per year, but you expect its dividend to grow 4%6 per year forever. The price of HI Tech Co is also $125. Given your expectations, is one company a better deal than the other? Explain why or why not? (Hint; figure out the discount rate you would need to rationalize each price using the present value rules that we went over in class).
You want to purchase some shares of Eagle Landers stock but need a 11 percent rate of return to compensate for the perceived risk of such ownership. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $0.84 annual dividend per share? You must use the financial calculator to solve this question and please leave at least 2 decimal places.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
You are considering the purchase of XYZ Company's common stock which will pay a $ 1.00 per share dividend one year from the date of purchase. The dividend is expected to grow at the rate of 4% per year. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock? A) $7.14 B) $10.00 C) $25.00 D) Cannot be determined without
Suppose you think company Y’s share is going to appreciate substantially in value next year. The current share of company Y is $150. One call option of this company’s share expiring in one year is currently available at $15 with an exercise price of $150. With $150,000 to invest, you are considering three investment strategies: a. Invest all $150,000 b. Invest all $150,000 in options c. Buy 5,000 options and invest the remaining amount in treasury bills paying 5% annually What is the value of your portfolio and your rate of return for each strategy for the following share prices one year from now? Summarise your results in a table and draw a graph showing return for each alternative (Hint: show return on Y axis and share price on X axis). Share prices $130, $140, $150, $160 and $170
Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $41.87 per share. She expects the price of the stock to rise to $58.68 over the next 3 years. During that time she also expects to receive annual dividends of $4.45 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 11%? b. What is its expected return? a. The intrinsic worth of this stock is $ nearest cent.) R (Round to the
A stock currently sells for $20 per share and pays $1 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $27 in one year and requires a 8 percent return on equity investments?
Company A will pay a dividend at the end of each year at 150Php for the next 3 years for Stock A with a discount rate of 6%. Company B, on the other hand, will pay annual dividend of 50php, 100Php, and 150Php respectively in the next 3 years for Stock B with a discount rate of 8%. Which stock would an investor favor?
You buy Disney stock at $80/ share. It’s worth $85 at the end of the first year and $90 at the end of the second year. You decide to sell it at $90. No dividend is paid, what are the two one-year returns (expressed as a percent)? What is the annualized return or geometric average (it’s a percent) for the two years?
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.72 per share and paid cash dividends of $2.02 per share (D0=$2.02). Grips' earnings and dividends are expected to grow at 40% per year for the next 3 years, after which they are expected to grow 9% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 10% on investments with risk characteristics similar to those of Grips?
Investor A and investor B both have required rates of return of 12%. They are considering the purchase of XTRA stock, which each views as a constant growth case. Both have estimated the dividend for the next period at $1.00, and both agree that the expected growth rate in dividends will be 6% a year. However, investor A plans to buy the stock and hold it for 10 years, while investor B plans to buy the stock and hold it for ONLY 1 year. Which of the following statements is CORRECT about stock valuation? Investor A should be willing to pay more for this stock than B. Investor B should be willing to pay more for this stock than A. Both investors should be willing to pay the same price for the stock. None of these.
If Amime bugs a share of Eticalat stock today. - he will be able to sell it in 3 years for $50.- he will receive a $1 dividend at the end of ench of those 3 yeare. If the prevailing interest rate is 10% , what is the value of a share of Etisalat stock today?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS