Integrative-Risk and valuation Giant Enterprises' stock has a required return of 14.2%. The company, which plans to pay a dividend of $1.84 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over 2013-2019 period, when the following dividends were paid: E. a. If the risk-free rate is 6%, what is the risk premium on Giant's stock? b. Using the constant-growth model, estimate the value of Giant's stock. (Hint: Round the computed dividend growth rate to the nearest whole percent.) c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. a. If the risk-free rate is 6%, the risk premium on Giant's stock is %. (Round to one decimal place.) b. Using the constant-growth model, the value of Giant's stock is $. (Round to the nearest cent.) c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. (Select from the drop-down menus.) A decrease in the risk premium would the required rate of return, which in turn would the price of the stock. Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year Dividend per Share P 2019 $1.72 $1.61 $1.50 2018 2017 $1.40 $1.31 $1.23 $1.15 2016 2015 2014 2013
Integrative-Risk and valuation Giant Enterprises' stock has a required return of 14.2%. The company, which plans to pay a dividend of $1.84 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over 2013-2019 period, when the following dividends were paid: E. a. If the risk-free rate is 6%, what is the risk premium on Giant's stock? b. Using the constant-growth model, estimate the value of Giant's stock. (Hint: Round the computed dividend growth rate to the nearest whole percent.) c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. a. If the risk-free rate is 6%, the risk premium on Giant's stock is %. (Round to one decimal place.) b. Using the constant-growth model, the value of Giant's stock is $. (Round to the nearest cent.) c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. (Select from the drop-down menus.) A decrease in the risk premium would the required rate of return, which in turn would the price of the stock. Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year Dividend per Share P 2019 $1.72 $1.61 $1.50 2018 2017 $1.40 $1.31 $1.23 $1.15 2016 2015 2014 2013
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:Integrative-Risk and valuation Giant Enterprises' stock has a required return of 14.2%. The company, which plans to pay
a dividend of $1.84 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent
with that experienced over 2013-2019 period, when the following dividends were paid: E-
a. If the risk-free rate is 6%, what is the risk premium on Giant's stock?
b. Using the constant-growth model, estimate the value of Giant's stock. (Hint: Round the computed dividend growth rate to
the nearest whole percent.)
c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock.
a. If the risk-free rate is 6%, the risk premium on Giant's stock is
%. (Round to one decimal place.)
b. Using the constant-growth model, the value of Giant's stock is $
(Round to the nearest cent.)
c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. (Select from the
drop-down menus.)
A decrease in the risk premium would
V the required rate of return, which in turn would
the price of the
stock.
Data Table
(Click on the icon located on the top-right corner of the data table below in order to
copy its contents into a spreadsheet.)
Year
Dividend per Share E
2019
$1.72
2018
$1.61
$1.50
2017
$1.40
$1.31
$1.23
$1.15
2016
2015
2014
2013
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