he risk-free rate of return is 1 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 6 percent, an ound intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $56.00, what should you do? The stock -Select- be purchased. c. If the expected return on the market rises to 10.1 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 4 percent and the return on the market rises to 10.6 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.5 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- the required return and -Select- the value of the stock. The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to -Select-v the value of the stock. The decrease in the beta coefficient causes the firm to become -Select-risky as measured by beta, which -Select-
he risk-free rate of return is 1 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 6 percent, an ound intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $56.00, what should you do? The stock -Select- be purchased. c. If the expected return on the market rises to 10.1 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 4 percent and the return on the market rises to 10.6 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.5 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- the required return and -Select- the value of the stock. The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to -Select-v the value of the stock. The decrease in the beta coefficient causes the firm to become -Select-risky as measured by beta, which -Select-
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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Transcribed Image Text:The risk-free rate of return is 1 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 6 percent, and a current dividend of $2.70 a share. Do not
round intermediate calculations. Round your answers to the nearest cent.
a. What should be the market price of the stock?
$
b. If the current market price of the stock is $56.00, what should you do?
The stock -Select- ✓be purchased.
c. If the expected return on the market rises to 10.1 percent and the other variables remain constant, what will be the value of the stock?
d. If the risk-free return rises to 4 percent and the return on the market rises to 10.6 percent, what will be the value of the stock?
$
e. If the beta coefficient falls to 1.5 and the other variables remain constant, what will be the value of the stock?
$
f. Explain why the stock's value changes in c through e.
The increase in the return on the market -Select-
the required return and -Select-the value of the stock.
The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to-Select-
The decrease in the beta coefficient causes the firm to become -Select- risky as measured by beta, which -Select-the value of the stock.
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