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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1. (20%) FIN307 stock has the following probability distribution of expected prices one year from now: State 1 2 3 Probability .25 .40 Price $50 $60 .35 $70 If you require a risk premium of 5% and Rf is 4%. What is the price you are willing to pay today for FIN307? Assuming the stock will pay a dividend of $4 per share.
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…
You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00) and has a beta of 0.9. The risk-free rate is 3.7%, and the market risk premium is 4%. Justus currently sells for $33.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3) Do not round intermediate calculations. Round your answer to the nearest cent. Only typing answer Please explain step by step
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Vijay
3
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You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.75 a share at the end of the year (D1 = $2.75) and has a beta of 0.9. The risk-free rate is 5.1%, and the market risk premium is 6%. Justus currently sells for $41.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Do not round intermediate calculations. Round your answer to the nearest cent.

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