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 willbe $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 $20.21O $16.75$16.90$16.61.

Option (4) $16.61Explanation:Given information, Dividend in one year (D1) = $1Dividend in year two…

Answered: Crate stock is expected to pay…

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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Hudson Corporation will pay a dividend of $2.20 per share next year. The company pledges to increase its dividend by 6.00 percent per year indefinitely. If you require a return of 10.80 percent on your investment, how much will you pay for the company's stock today? Multiple Choice O$45.83 O O $47.67 $12.35 $43.24
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% retum? O $20.21 $16.75 $16.90 O $16.61.
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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…

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