Consider four different stocks, all of which have a required return of 12 percent and amost recent dividend of $3.00 per share. Stocks W, X, and Y are expected to maintainconstant growth rates in dividends for the foreseeable future of 10 percent, O percent,and -4 percent per year, respectively. Stock Z is a growth stock that will increase itsdividend by 20 percent for the next two years and then maintain a constant 10 percentgrowth rate thereafter.What is the dividend yield for each of these four stocks? (Do not round intermediatecalculations and enter your answers as a percent rounded to 2 decimal places, e.g.,32.16.)Stock W%Stock X%Stock Y%Stock Z%What is the expected capital gains yield for each of these four stocks? (Leave no cellsblank - be certain to enter "O" wherever required. A negative answer should beindicated by a minus sign. Do not round intermediate calculations and enter youranswers as a percent rounded to 2 decimal places, e.g., 32.16.)Stock W%Stock X%Stock Y%Stock Z%

Stock valuation using the Dividend Discount Model (DDM) is a method that estimates the intrinsic…

Answered: Consider four different stocks, all of…

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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Use the two-stage dividend growth model to value a stock, using the following information: The cost of equity is 13% (1) Dividends have been growing at an annual rate of 10% for the last five years and assume this growth rate will continue through the next 5 years, which is the first stage. The last dividend paid was $2.00. Calculate the expected dividend each year for years 1 - 5 and their present values. (2) Suppose that after year 5, the dividends are expected to grow at 2.5% (second-stage growth rate) per year, indefinitely. (3) Calculate today's stock price based on the above information.
Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $3.80 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, O percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 15 percent growth rate thereafter. What is the dividend yield and capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "O" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.)
Consider four different stocks, all of which have a required return of 19% and a most recent dividend of $2.40 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 8%, 0%, and -5% per year respectively. Stock Z is a growth stock that will increase its dividend by 20% for the next two years and then maintain a constant 12% growth rate thereafter. What is the dividend yield for each of these four stocks? What is the expected capital gains yield? Discuss the relationship among the various returns that you find for each of these stocks. Please show work with formulas no excel. ..
You wish to earn a return of 11% on each of two stocks, A and B. Stock A is expected to pay a dividend of $3 in the upcoming year while stock B is expected to pay a dividend of $2 in the upcoming year. The expected growth rates of dividends for stocks A and B are 4% and 3%, respectively. Using the constant growth DDM, the intrinsic value of stock A Will be less than the intrinsic value of stock B O Will be higher than the intrinsic value of stock B O More information is necessary to Answer this question O Will be the same as the intrinsic value of stock B
The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year. a. If this year's year-end dividend is $8.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Current stock price b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) Value of ROE c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? (Round your answer to 2 decimal places.) Amount % per share
A stock currently pays a dividend of $2.50 for the year. Expected dividend growth is 15% for the next three years and then growth is expected to revert to 7% thereafter for an indefinite amount of time. The appropriate required rate of return is 9%. What is this stock’s intrinsic value?
PerfectlySoft Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 15 percent over the following year, and then 4 percent per year thereafter indefinitely. The required return on this stock is 8.18 percent, and the stock currently sells for $79.91 per share. What is the projected dividend (in $) for the coming year? Answer to two decimals, carry intermediate calcs. to four decimals.
A stock is expected to pay a dividend of $3.60 in the next year and thereafter it is expected to grow its dividends indefinitely at a constant annual growth rate of 3.6%. Using a required rate of return (or discount rate) of 9%, calculate the current fair value for this stock.
A company’s stock currently sells for $21.25 per share. The stock’s dividend is projected to increase at a constant rate of 6.5% per year. The required rate of return on the stock, is 13.00%. What is the expected stock price 3 years from today?
Mobray Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 7 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $88 per share. What is the projected dividend for the coming year? (i.e. Div 1)
Consider four different stocks, all of which have a required return of 18 percent and a most recent dividend of $3.55 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 11.5 percent, O percent, and -6 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 13.5 percent growth rate, thereafter. a. What is the dividend yield for each of these four stocks? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the expected capital gains yield for each of these four stocks? Note: A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Stock W dividend yield Stock X…
Sheridan Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 7 percent. If the required rate of return is 19.00 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.) Current value

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