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

See similar textbooks

Similar questions

The risk-free rate of return is 2 percent, and the expected return on the market is 6.1 percent. Stock A has a beta coefficient of 1.3, an earnings and dividend growth rate of 5 percent, and a current dividend of $1.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $81.00, what should you do? The stock -Select- ✓ be purchased. c. If the expected return on the market rises to 14.1 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 5 percent and the return on the market rises to 14.3 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.2 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- ✓the required return and…
Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place. ? % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place. ? % The above is a two part question, therefore the second answer is determined based off the first answer provided. Please, please, please do provide both answers.
a,b have been answered. provide answer for question c only
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.
The risk-free rate of return is 3 percent, and the expected return on the market is 7 percent. Stock A has a beta coefficient of 1.3, an earnings and dividend growth rate of 5 percent, and a current dividend of $2.10 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $91.00, what should you do? The stock -Select-shouldshould notItem 2 be purchased. If the expected return on the market rises to 13.1 percent and the other variables remain constant, what will be the value of the stock? $ If the risk-free return rises to 4.5 percent and the return on the market rises to 13.9 percent, what will be the value of the stock? $ If the beta coefficient falls to 1.2 and the other variables remain constant, what will be the value of the stock? $ Explain why the stock’s value changes in c through e. The increase in…
The risk-free rate of return is 3 percent, and the expected return on the market is 7 percent. Stock A has a beta coefficient of 1.3, an earnings and dividend growth rate of 5 percent, and a current dividend of $2.10 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $91.00, what should you do? The stock -Select-shouldshould notItem 2 be purchased. If the expected return on the market rises to 13.1 percent and the other variables remain constant, what will be the value of the stock? $ If the risk-free return rises to 4.5 percent and the return on the market rises to 13.9 percent, what will be the value of the stock? $ If the beta coefficient falls to 1.2 and the other variables remain constant, what will be the value of the stock? $ Explain why the stock’s value changes in c through e. The increase in…
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.
answer each part correctly PLEASE.
← You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.) ...
Am I calculating the Required Return corrrectly using basic algebra? As I see it the investors are requring a return = 10%.
Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Briefly explain your choice. Show work in excel X Y Price $30 $30 Expected growth (constant) 6% 4% Required return 12% 10% a. Stock Y has a higher dividend yield than Stock X. b. One year from now, Stock X's price is expected to be higher than Stock Y's price. c. Stock X has the higher expected year-end dividend. d. Stock Y has a higher capital gains yield. e. Stock X has a higher dividend yield than Stock Y.
PLEASE ANSWER EACH PART CORRECTLY PLEASE!! go over

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning