The risk-free rate of return is 5%, the expected rate of return on the market portfolio is 12%, and the stock of Xyron beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 17% pe reinvested earnings forever. Required: a. What is the intrinsic value of a share of Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic valu what is your expected 1-year holding-period return on Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Intrinsic value b. Expected one-year holding-period return %

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
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Problem 18-16 (Algo)
The risk-free rate of return is 5%, the expected rate of return on the market portfolio is 12%, and the stock of Xyrong Corporation has a
beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $7.50 per share.
Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 17% per year on all
reinvested earnings forever.
Required:
a. What is the intrinsic value of a share of Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now
what is your expected 1-year holding-period return on Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
a Intrinsic value
b. Expected one-year holding-period return
olo
Transcribed Image Text:ts 03:10:25 eBook ferences Problem 18-16 (Algo) The risk-free rate of return is 5%, the expected rate of return on the market portfolio is 12%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $7.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 17% per year on all reinvested earnings forever. Required: a. What is the intrinsic value of a share of Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now what is your expected 1-year holding-period return on Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a Intrinsic value b. Expected one-year holding-period return olo
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