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
Transcribed Image Text:The following data table represents the dividend per share for a company over a span of seven years, from 2013 to 2019.
| Year | Dividend per Share |
|------|---------------------|
| 2019 | $2.79 |
| 2018 | $2.66 |
| 2017 | $2.53 |
| 2016 | $2.41 |
| 2015 | $2.30 |
| 2014 | $2.19 |
| 2013 | $2.08 |
### Analysis:
The table demonstrates a consistent increase in the dividend per share each year. Starting at $2.08 in 2013, there is a yearly increment which leads to a dividend of $2.79 in 2019. This data could indicate a period of stable growth or profitability for the company.
### Educational Insight:
Understanding trends in dividend per share is crucial for investors as it reflects the company's financial health and its willingness to distribute profits to shareholders. A rising dividend per share generally suggests that the company is performing well financially and may be a positive signal for current and potential investors.
![**Integrative—Risk and Valuation**
Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.93 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with what was experienced over the 2013-2019 period, when the following dividends were paid:
[Table or data not visible]
**Tasks:**
a. *If the risk-free rate is 5%, what is the risk premium on Giant’s stock?*
b. *Using the constant-growth model, estimate the value of Giant’s stock.*
*(Hint: Round the computed dividend growth rate to the nearest whole percent.)*
c. *Explain what effect, if any, a decrease in the risk premium would have on the value of Giant’s stock.*
---
a. If the risk-free rate is 5%, the risk premium on Giant’s stock is _______%. (Round to one decimal place.)
[Note: The data or dividends table referenced is not visible, which is crucial for the completion of some tasks. Ensure all necessary information is provided.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F553f4f5a-ebc3-465d-ae10-30fadeaa7064%2Fe5de61fd-068e-456d-aae2-df31a9f0d48f%2Fgaufsgp_processed.png&w=3840&q=75)
Transcribed Image Text:**Integrative—Risk and Valuation**
Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.93 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with what was experienced over the 2013-2019 period, when the following dividends were paid:
[Table or data not visible]
**Tasks:**
a. *If the risk-free rate is 5%, what is the risk premium on Giant’s stock?*
b. *Using the constant-growth model, estimate the value of Giant’s stock.*
*(Hint: Round the computed dividend growth rate to the nearest whole percent.)*
c. *Explain what effect, if any, a decrease in the risk premium would have on the value of Giant’s stock.*
---
a. If the risk-free rate is 5%, the risk premium on Giant’s stock is _______%. (Round to one decimal place.)
[Note: The data or dividends table referenced is not visible, which is crucial for the completion of some tasks. Ensure all necessary information is provided.]
Expert Solution
Step 1: Information required for calculation:
- Required return= 14.8%
- Risk-free rate= 5%
- Dividend for 2013 = $2.08
- Dividend for 2014 = $2.19
- Dividend for 2015 = $2.30
- Dividend for 2016 = $2.41
- Dividend for 2017 = $2.53
- Dividend for 2018 = $2.66
- Dividend for 2019 =$2.79
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