PV = $8.62JSuppose you are considering buying a stock. You expect the stock to pay a dividend of $3 one year from today, $3.50 two years from today, and then dividend will grow 2%each year after that. Using the CAPM, you estimate your required return at 9% to compensate you for the risk of this stock's cash flows. What is the maximum price you arewilling to pay for a share of the stock? LOSType: Multiple ChoicePoints Awarded: 0.000/1.000User Answers):$40.21Rationale: Feedback Section 8.3. Valuing Stock: The Dividend Discount Model; Example 8.3.3. Find the intrinsic value of a stock with variable dividendsPV=PV (Dividend 1 through 2) + PV (Dividend 3 through ∞) =$3.50+(1.091.00PV 6.6982 42.03PV $18.62

Sum the Present Values: Intrinsic Value=PV(D1)+PV(D2)+PV(P2)=2.75+2.95+42.94=48.64Thus, the correct…

Answered: PV = $8.62 J Suppose you are…

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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You have $19,878 to invest in a stock portfolio. Your choices are Stock "X" with an expected return of 12.5% and Stock Y with an expected return of 8.24%. If your goal is to create a portfolio with an expected return of 11.92%, how much money will you invest in Stock X? State of Economy Probability of State of Economy Return Stock A Return Stock B Return Stock C Boom 0.20 19.41% 20.65% 29.51% Good 0.35 8.08% 10.59% 13.88% Poor 0.40 5.53% 3.23% 5.04% Bust 0.05 1.77% 1.47% 1.16% Your portfolio is invested 23% each in stock A and C and the remaining in stock B. What is the expected return of the portfolio? NOTE: Enter the PERCENTAGE number rounding to two decimals. If your decimal answer is 0.034576, your answer must be 3.46. DO NOT USE the % sign A Stock has a beta of 1, the expected return on the market is 17.72%, and the risk-free rate is 4.85%. What must the expected return on this stock be? NOTE: Enter the PERCENTAGE number rounding to two…
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