The stock has a beta of 1.3, the risk-free interest rate is 6%, and the expected market return is 11%. What should be the equilibrium price of Investors’ stock in the market now?
The stock has a beta of 1.3, the risk-free interest rate is 6%, and the expected market return is 11%. What should be the equilibrium price of Investors’ stock in the market now?
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
Related questions
Question
1. Investors, Inc.’s stock is expected to generate a dividend and terminal value one year from now of P57.00. The stock has a beta of 1.3, the risk-free interest rate is 6%, and the expected market return is 11%. What should be the equilibrium price of Investors’ stock in the market now?
P43.85.
P50.67.
P53.77
P41.22
2. A company has P1 million in shareholders' equity and P2 million in debt equity (8% bonds). Its after-tax weighted-average cost of capital is 12%, but it uses 15% as the hurdle rate in capital budgeting decisions. During the past year, its operating income before tax and interest was P500,000. Its tax rate is 40%. What is the company's cost of equity capital?
8%
15%
26.4%
12%
3. A company recently issued 9% preferred stock . The preferred stock sold for P40 a share with a par of P20. The cost of issuing the stock was P5 a share. What is the company's cost of preferred stock?
4.5%
10.3%
5.1%
9.0%
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