) You are planning to buy a stock, which is estimated to pay dividends of $2.10 next year and grow continuously at a 6% rate. If your required rate of return for this stock is 15%, what should you pay for it? (What happens to your answer to problem (a), if g increases, k increases, or D increases
) You are planning to buy a stock, which is estimated to pay dividends of $2.10 next year and grow continuously at a 6% rate. If your required rate of return for this stock is 15%, what should you pay for it? (What happens to your answer to problem (a), if g increases, k increases, or D increases
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
- a) You are planning to buy a stock, which is estimated to pay dividends of $2.10 next year and grow continuously at a 6% rate. If your required
rate of return for this stock is 15%, what should you pay for it? (What happens to your answer to problem (a), if g increases, k increases, or D increases?) - b) If you can sell the above stock in three years at a price of $35 (realizing three years of dividends as well), what price should you pay for it?
- c) If the conditions of part (a) hold true, what should you be able to sell the stock for in three years?
- d) ATT currently (t=0) pays a dividend of $2.46 and has a required return of 13%. If the company pays out 60% of its earnings and generates a consistent 12%
return on equity , compute its stock price. - e) A
preferred stock pays dividends at a 9% rate on $100 par value. Compute the price if market rates are currently 11%. - f) If a common stock pays a dividend next year of one dollar and has a current selling price of $12 with expected future growth to be a consistent 6%, what return is the stock providing.
- g) If that same stock has a P/E ratio of 8, compute its EPS and payout ratio
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education