The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporationhas a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 pershare. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on allreinvested 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 $100, and you expect the market price to be equal to the intrinsic value one year from now,what is your expected 1-year holding-period return on Xyrong stock?Note: Do not round intermediate calculations. Round your answer to 2 decimal places.> Answer is complete but not entirely correct.$a. Intrinsic valueb. Expected one-year holding-period return99.4111.05 X %

(a) Risk-Free Rate = Rf = 6.5 %, Market Return = Rm = 13.5 % (return on market portfolio), Beta = B…

Answered: The risk-free rate of return is 6.5%,…

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 are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) and has a beta of 0.9. The risk - free rate is 5.2 %, and the market risk premium is 5%. Justus currently sells for $28.00 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.
Westlake Company's stock has an estimated beta of 1.5 and the company just paid a dividend of $2 per share. Westlake is expected to grow its dividends at 5% p.a. indefinitely. The risk-free interest rate is 4% per annum, and the estimated market risk premium is 6%. 1. Use the CAPM to calculate Westlake' required rate of return. 2. Estimate Westlake's intrinsic value per share.
Suppose that the rate of return on the market portfolio is 8% and the risk-free rate is 1%. Con- sider a stock with B = 1.3. The firm is expected to have no earnings in the first year (E1 = 0), and then $10 earnings-per-share in the second year (E2 = 10). After that, earnings are expected to grow at a constant annual rate of 8%. The retention ratio is 80% in all periods. Round-up all your answers to 2 decimal places. А. Find the fundamental value of the stock today (t = 0). В. Suppose the company decided to pay out 40% of its earnings as dividends. What would be the fundamental value of the stock today (t = 0)?
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Victoria Company's beta is exactly 1.2, and the market risk premium is 9%, with a risk-free rate of 6%. The company's most recent dividend was $9 per share, and the dividend is expected to grow at 12% for the next three years and then grow at 5% per year indefinitely. 1. What would be Victoria's shares' intrinsic value per share? 2. What would be the dividend yield? 3. If all the expectations stay the same as stated, what would the share price be a year from now? What would be your capital gain if you owned a share for the year? Show that this gain is consistent with the expected dividend yield calculated above.
Portman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year. The risk-free rate (rRFrRF) is 4.00%, the market risk premium (RPMRPM) is 4.80%, and Portman’s beta is 2.00. What is the dividents one year from now? What is the Horizon value? What is the Intrinsic value?
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 3.6%, and the market risk premium is 5%. Justus currently sells for $40.00 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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The future earnings, dividends, and common stock price of Core-Tech, Inc. are expected to grow 6% per year. Core-Tech's common stock currently sells for $21 per share; its last dividend was $2.00; and it will pay a $2.30 dividend at the end of the current year. If the firms beta is 1.9, the risk free rate is 8%, and the average return on the market is 14%, what is the firms cost of common equity (retained earnings) using the CAPM approach?
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Handy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the discounted cash flow method, compute the cost of retained earnings for HH: Question 13 options: 13.3% 18.4% 16.3% 15.7%

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