Integrative-Risk and Valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. (Click on the icon located on the top-right corner of the data tablebelow in order to copy its contents into a spreadsheet.)Current price per share of common stockExpected dividend per share next yearConstant annual dividend growth rate$48.77 O$1.195.7%Risk-free rate of return3.3%The risk premium on Foster stock is %. (Round to two decimal places.)

Risk premium is the premium that an investor earns above the risk free rate for taking certain…

Answered: Integrative-Risk and Valuation Given…

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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*Please solve using excel and explain formulas. Question: Here are forecasts for next year for two stocks: Stock A Stock B Return on equity 17 % 14 % Earnings per share $ 3.00 $ 2.50 Dividends per share $ 2.00 $ 2.00 a. What are the dividend payout ratios for each firm? b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks. c. If investors require a return of 17% on each stock, what are their values?
You've collected the following information from your favorite financial website. 52-Week Price Dividend Hi Lo Stock (Dividend) Yield % PE Ratio Close Price Net Change 77.40 10.43 Acevedo .36 2.6 6 13.90 -.24 55.96 33.57 Georgette, Incorporated 1.69 4.2 10 40.58 -.01 130.93 69.50 YBM 2.00 2.2 10 88.97 3.07 50.24 35.00 13.95 Manta Energy .80 5.2 15.43 -.26 20.74 winter sports .32 1.5 28 ?? .18 Find the quote for the Georgette, Incorporated. Assume that the dividend is constant. a. What was the highest dividend yield over the past year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What was the lowest dividend yield over the past year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Highest dividend yield b. Lowest dividend yield -7.54% 3.96 %
Review the following market information: Current Stock Market Return 11.25% Current T-Bill Price $979.43 Historic T-Bill Average Return 2.80% Historic Stock Market Average Return 8.10% Stock Beta 1.23 What is the required return (rounded to two places)?
Faux Corp Stock Over the Last 10 years - Beta = 1.1 - Market Risk premium = 10% - Current risk-free rate 3% - Last dividend $5 - Current Stock Price $30 Dividend History 2016 - $4.20 2017 - $4.40 2018 - $4.55 2019 - $4.75 2020 - $5.00 1. Calculate the cost of equity using SML
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate gL = 4.2%. The firm's current common stock price, P0, is $21.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6%, and the firm's stock has a current beta, b, = 1.1. Assume that the firm's cost of debt, rd, is 8.99%. The firm uses a 4% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to 2 decimal places. CAPM cost of equity: % Bond-Yield-Plus-Risk-Premium: % DCF cost of equity: %
Financial analyst of Castle Investment Trust has gathered the following information on FRIVY Inc. and the market: Current market price per share of common stock €76.5Most recent dividend per share paid on common stock € 5.2Expected dividend payout rate 32%Expected return on equity (ROE) 12.5%Beta for the common stock 1.43Expected return on the market portfolio 13.40%Risk-free rate of return 4.20%Using the dividend discount model approach, estimate the cost of common equity for the company.
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $37.01 Expected dividend per share next year $1.39 Constant annual dividend growth rate 8.4% Risk-free rate of return 5.2%
Retained earnings versus new common stock Using the data for a firm shown in the following table, calculate the cost of retained earnings and the cost of new common stock using the constant-growth valuation model. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Current market price per share $52.00 Dividend growth rate 6% a. The cost of retained earnings is %. (Round to two decimal places.) Projected dividend per share next year $2.60 Underpricing per share $1.50 Flotation cost per share $2.25
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate gL = 5.3%. The firm's current common stock price, Po, is $26.00. The current risk-free rate, TRF, = 4.6%; the market risk premium, RPM, = 5.9%, and the firm's stock has a current beta, b, = 1.1. Assume that the firm's cost of debt, rd, is 8.91%. The firm uses a 3.9% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity: % % % If you are equally confident of all three methods, then what is the best estimate of the…
EXCEL PROJECT AND EXCEL SOLUTION Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim: Stock A Stock B Stock с Stock D Market Capitalization (5 million) 800 750 950 900 Expected Liquidating Dividend ($ million) 1000 1000 1000 1000 Beta PLEASE SHOW SOLUTIONS IN EXCEL 0.77 1.46 1.25 1.07 a. Calculate the expected return of each stock. b. What is the sign of correlation between the expected return and market capitalization of the stocks? In Problem 20, assume the risk-free rate is 3% and the market risk premium is 7%. a. What does the CAPM predict the expected return for each stock should be? b. Clearly, the CAPM predictions are not equal to the actual expected returns, so the CAPM does not hold. You decide to investigate this further. To see what kind of mistakes the CAPM is making, you decide to regress the actual expected return onto the expected return predicted by the CAPM.49 What is the intercept and slope coefficient of…
P7-23 Integrative: Risk and valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common $50.00Expected dividend per share next year $ 3.00Constant annual dividend growth rate 6.5%Risk-free rate of return 4.5%
A stock has had the following year-end prices and dividends: Year Price 0 012345 1 $ 15.00 17.18 18.18 16.68 19.02 22.13 Dividend $ 0.15 0.38 0.40 0.42 0.48 What are the arithmetic and geometric returns for the stock? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Arithmetic return Geometric return % %

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