D. (1) The shares of BrightStark Ltd. are expected to generate the following possible returns in one year. What is the expected return over the next 12 months? Assume that the stock pays no dividends. Return 3% 4% 7% 15% 25% Probability 0.05 0.25 0.30 0.25 0.15 (2) Suppose Brightlight, Inc. was trading at $27.29 per share. At that time, it pays an annual dividend of $0.32 per share, and analysts have set a 1-year target price around $33.30 per share. What is the expected return on this stock? (3) What is the price for a stock with an expected dividend and price next year of $1 and $30, respectively? Use a 10% discount rate. (4) What is the current share price for a firm which has just paid a dividend of £2.5 and expects to increase its dividend by 3.5% every year, and the company has a required rate of return of 5%?

D. (1) The shares of BrightStark Ltd. are expected to generate the following possible returns in one year. What is the expected return over the next 12 months? Assume that the stock pays no dividends. Return 3% 4% 7% 15% 25% Probability 0.05 0.25 0.30 0.25 0.15 (2) Suppose Brightlight, Inc. was trading at $27.29 per share. At that time, it pays an annual dividend of $0.32 per share, and analysts have set a 1-year target price around $33.30 per share. What is the expected return on this stock? (3) What is the price for a stock with an expected dividend and price next year of $1 and $30, respectively? Use a 10% discount rate. (4) What is the current share price for a firm which has just paid a dividend of £2.5 and expects to increase its dividend by 3.5% every year, and the company has a required rate of return of 5%?

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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'S A company will pay a $2 per share dividend in 1 year. The dividend in 2 years will be $4 per share, and it is expected that dividends will grow at 5% per year thereafter. The expected rate of return on the stock is 14%. a. What is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current price b. What is the expected price of the stock in a year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected price
Fowler, Inc., just paid a dividend of $2.75 per share on its stock. The dividends are expected to grow at a constant rate of 6.5 percent per year, indefinitely. Assume investors require a return of 11 percent on this stock. a. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the price be in three years and in fifteen years?
Varigrowth Inc. just paid a dividend of $1.96 (i.e., Do = $1.96). Such dividend is expected to grow by 10% per year for the next 3 years, after which it is expected to grow at a long-run rate of 4%. Assuming investors require a 14% return on the stock, a) What is the price at t=3? $ 13 (to the nearest cent) b) What is its price today? $ (to the nearest cent) c) What is your total rate of return (% to two decimals) if in one year the price is $23.56 and the dividend is $2.12? What is your capital gain (loss) yield?% What is your dividend yield?
4) Suppose stock AAA pays an annual dividend of $2. Shareholders require a rate of return of 12% annually on the stock. a) Use the DDM model to find the price of the stock. b) Suppose the firm just paid a dividend of $2 but it is expected that the dividend rate will grow at a fixed rate such that next year's dividend will be $2.20. What will the dividend payments be over the next 3 years? c) With the growth rate as described in part b), calculate the price of a single share of the stock. d) Now suppose you hear from an well known analyst that even though the firm just paid a $2 dividend, the firm is expected to have supernormal growth rate of 20% over the next 5 years. After that, growth will level off to 10% per year. Over these 5 years, the firm plans to take on massive amounts of debt. So the discount rate investors should use is 15% over those supernormal growth years. After that the discount rate should revert to 12%. Calculate the price of a share of stock.
Tresnan Brothers is expected to pay a $3.20 per share dividend at the end of the year (l.e., D₁ = $3.20). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 12%. What is the stock's current value per share? Round your answer to the nearest cent.
a) Company X is expected to pay an end-of-year dividend of $5.25 a share. After the dividend its stock is expected to sell at $350. If the market rate is 11.5% p.a., what is the current stock price? b) If the beta of a stock is 1.0, and financial analysts expect the market to grow 5% during the next year, will you expect the stock of Company X to rise or fall? Calculate by what percentage, on average, the stock price increases/decreases. Romanoff Company does not plan to pay any dividends until year 3. Financial managers expect the dividend in year three to be $2.65 and dividends in future years to grow at a constant rate of 4.5%. Calculate the value of the stock of Romanoff Company today if the firm's risk-adjusted required rate of return is 18% p.a.
A share of stock pays a constantly growing (end-of-the-year) dividend. If the stock sells for $84.77/share today, the dividend to be paid in exactly one year (at t=1) is $9.09, and the total return required by investors (in the stock) is 15.73%, at what price should each share sell in exactly 6 years (at t=6)? (Answer to the nearest $0.01)
The stock of Business Adventures sells for $30 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: Boom Normal economy Recession Dividend $ 2.00 1.40 0.50 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation Answer is complete and correct. Stock Price $ 40 34 25 14.33 22.60 Expected return Standard deviation b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % % Answer is complete but not entirely correct. 8.75 11.30 % %
3) see picture
The Starr Co. just paid a dividend of $1.10 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year, indefinitely. Investors require an 11 percent return on the stock. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) What is the current price? Current price $ What will the price be in three years? Stock price $ What will the price be in 14 years? Stock price $
Tim Burr Wolff believes that Builtrite will pay the following dividends over the next 3 years: $3.30, $3.50 and $3.70. The current stock price is $49 and it is expected to sell at $61 by the end of the three years. Tim's required rate of return is 12%. What is the AYTM for Builtrite stock? 14.2% 15.2% 16.6% 21.7%
You have just purchased a share of stock for $20.29.The company is expected to pay a dividend of $0.52 per share in exactly one year. If you want to earn a 9.1% return on your investment, what price do you need if you expect to sell the share immediately after it pays the dividend? The price one year from now should be $_______.(Round to the nearest cent.)

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