HelpSave & ExitSubmitA stock you are evaluating is expected to experience supernormal growth in dividends of 12 percent overthe next three years. Following this period, dividends are expected to grow at a constant rate of 4 percent.The stock paid a dividend of $1.50 last year and the required rate of return on the stock is 11 percent.Calculate the stock's fair present value.20Multiple Choice$16.24$21.56$24.25$27.46None of these choices are correct.McGrawHillEducationNext >20 of 20< Prev5étv SFEB19TXT8.

Recall that the price of the stock is nothing but present value of all the future dividends it's…

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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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Central Staircase is offering preferred stock which is commonly referred to as 10-10 stock. This stock will pay an annual dividend of $10 a share starting 10 years from now. What is this stock worth to you today if you desire a 16 percent rate of return? O $14.48 O $16.43 $17.07 $17.84 O $18.21
An investor with a required return of 16 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm A B C Current earnings $ 2.40 $ 3.50 $ 7.50 Current dividend $ 2.30 $ 2.40 $ 6.70 Expected annual growth rate in 5 % 1 % -2 % dividends and earnings Current market price $ 23 $ 20 $ 43 What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % If the appropriate P/E ratio is 11, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 4, what is the maximum…
You are considering purchasing a share of preferred stock with the following characteristics: par value = $100 dividend rate = 12% per year payment schedule = quarterly maturity date = required rate of return = 6% per year current market price = $135 per share Based on this information, answer the following: A. What is the dollar amount of the quarterly dividend on this stock? B. Using the Discounted Cash Flow Method, what is the dollar value of this stock? C. Using the Discounted Cash Flow Method, what is the annual expected return for this stock? D. Based on your answer to part B, should you invest in the stock? Why or why not? E.…
A stock is expected to pay its first $11 dividend in 8 years from now. The dividend is expected to be paid annually forever and grow by -1% pa (note the negative sign). The discount rate is 7% pa. Estimate the current stock price. The current stock price should be: Select one: a. $74.79 b. $80.03 c. $85.48 d. $85.63 e. $96.63 Give typing answer with explanation and conclusion
Use the Black-Scholes formula for the following stock: Time to expiration 6 months Standard deviation 60% per year Exercise price $57 Stock price $57 Annual interest rate 3% Dividend 0 Recalculate the value of the call with the following changes: a. Time to expiration 3 months b. Standard deviation 25% per year c. Exercise price $64 d. Stock price $64 e. Interest rate 6% Select each scenario independently. Note: Round your answers to 2 decimal places.
An investor with a required return of 15 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm A B C Current earnings $ 1.60 $ 3.20 $ 6.80 Current dividend $ 2.10 $ 2.50 $ 6.40 Expected annual growth rate in 5 % 2 % -3 % dividends and earnings Current market price $ 24 $ 23 $ 41 What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % If the appropriate P/E ratio is 17, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 5, what is the maximum…
Return on Common Stock You buy a share of The Ludwig Corporation stock for $18.40. You expect it to pay dividends of $1.08, $1.1491, and $1.2226 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $22.16 at the end of 3 years. a. Calculate the growth rate in dividends. Round your answer to two decimal places. % b. Calculate the expected dividend yield. Round your answer to two decimal places. % c. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return? (Assume the market is in equilibrium with the required return equal to the expected return.) Do not round intermediate calculations. Round your answer to two decimal places. %
part e
Calculate today's stock price, based on the following information: Growth rate of dividends years 1 and 2 = 20% Growth rate of dividends years 3 and 4 = 15% Growth rate of dividends year 5 moving forward = 5% Last dividend paid = $1.00 Required rate of return based on the riskiness of this stock = 12% (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Do not input a c Numeric Response
F1
ABC common stock is expected to pay a dividend of $3 a share at the end of the year; the required rate of return is 10%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $100 a share. Assuming the market is in equilibrium, the stock's price at the end of year 5 will be $_______. $60.83 $140.26 $54.12 $115.43
1

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