Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock U, which has a beta coefficient equal to 1.3, is currently selling for $37 per share. Thecompany is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $2.75 per share. Is Stock U correctly priced? Explain. Do not roundintermediate calculations. Round your answers to one decimal place.The required rate of return, that is%, is -Select-the expected rate of return, that is%, which means that -Select-

To determine whether stock Ubis correctly priced,we need to compare it's expected rate of return…

Answered: Suppose the risk-free rate of return is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 8P

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Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 9 percent. Stock U, which has a beta coefficient equal to 1.2, is currently selling for $39 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.50 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is 14.7 %, is -Select- Hide Feedback -Select- greater than lower than equal to the expected rate of return, that is %, which means that the selling price is too high
Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 8 percent. Stock U, which has a beta coefficient equal to 1.3, is currently selling for $30 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.00 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is %, is the expected rate of return, that is %, which means that .
Can you please give me correct answer the financial accounting question?
Use the following forecasted financials: (Certain cells were left intentionally blank by asker) You may need to use the CAPM model. Assume beta equals 1.09, the risk-free rate is 1.62%, and the market risk premium is 4.72%. d) Calculate the terminal value and the present value of the terminal value. Assume a long-term growth rate of 3%. e) Calculate Sherwin Williams value per share. The company has 263.3 million shares outstanding.
Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
Give typing answer with explanation and conclusion The return on the Tarheel Corporation stock is expected to be 14 percent with a standard deviation of 9 percent. The beta of Tarheel is 0.9. The risk-free rate is 6 percent, and the expected return on the market portfolio is 16 percent. What is the probability that an investor in Tarheel will earn a rate of return less than the required rate of return? Assume that returns are normally distributed. Use Table V to answer the question. Round z value in intermediate calculation to two decimal places. Round your answer to the nearest whole number.
Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 10.00%. The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the D2 constant growth model: P₁: TS-8 Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Activity Frame Dividend Price PV t 10.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $15.85 1 1.03 16.46 $0.94 2 1.07 17.08 $0.97 3 1.11 17.69 $1.01 4 1.15 18.31 $0.97 5 1.19 18.92 $0.94 The dividend yield for period 1 is and it will The capital gain yield expected during period 1 is and it will each period. each period. If it is…
Can you please solve these accounting question?
The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $36? Choose the right answer: a. 0.3 b. 0.4 c. 0.5 d. 0.6
A stock is expected to pay a dividend of $0.55 at the end of the year. The required rate of return is rs = 13.5%, and the expected constant growth rate is g = 7%. What is the stock's current price? (Round your answer to 2 decimal places.) Please work out do not use excel
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As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 4%, rM = 11%, and bUT = 1.2. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place. % Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and rUT? I. rM will remain the same and rUT will increase by 1 percentage point.II. rM will increase by 1 percentage point and rUT will remain the same.III. Both rM and rUT will decrease by 1 percentage point.IV. Both rM and rUT will remain the same.V. Both rM and rUT will increase by 1 percentage point. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will decrease by 1 percentage point.II. rM will decrease by 1 percentage point and rUT will remain the same.III. rM will remain the same and rUT will…

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