Market Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk free rate is 5.5% APPR Inc. has a beta of 9 and is expected to pay a dividend of $3.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of retum oquals the expected rate of return. Calculate the following Required rate of return of APPR Inc. stock a b C Expected growth rate Dividend yield and capital gain yield Now, assume inflationary expectations increase, causing the risk free rate to increase to 6.5% (but market risk aversion is constant) Assame the expected growth rate you just calculated stays the same. Calculate the following 4 f New required rate of return of APPR bc stock New stock price of APPR Inc. Stock-What market phenomenon caused the stock price to decrease? New dividend yield and capital gain yield
Market Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk free rate is 5.5% APPR Inc. has a beta of 9 and is expected to pay a dividend of $3.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of retum oquals the expected rate of return. Calculate the following Required rate of return of APPR Inc. stock a b C Expected growth rate Dividend yield and capital gain yield Now, assume inflationary expectations increase, causing the risk free rate to increase to 6.5% (but market risk aversion is constant) Assame the expected growth rate you just calculated stays the same. Calculate the following 4 f New required rate of return of APPR bc stock New stock price of APPR Inc. Stock-What market phenomenon caused the stock price to decrease? New dividend yield and capital gain yield
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 answer d, e, and f
Transcribed Image Text:**Market Equilibrium and Common Stock Growth**
The required return on the market is 11.5% and the risk-free rate is 5.5%. APPR Inc. has a beta of 9 and is expected to pay a dividend of $1.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of return equals the expected rate of return. Calculate the following:
a. Expected growth rate of APPR Inc. stock
b. Dividend yield
c. Dividends yield and capital gain yield
Now, assume inflationary expectations increase, causing the risk-free rate to increase to 6.5% (but market risk aversion is constant). Assume the expected growth rate you just calculated stays the same. Calculate the following:
d. New required rate of return of APPR Inc. stock
e. New stock price of APPR Inc. stock - What market phenomenon caused the stock price to decrease?
f. New dividend yield and capital gain yield
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