According to analysts, the growth rate in dividends for YBM for the next five years is expected to be 19.5 percent. Suppose YBM meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5 percent, indefinitely. Assume investors require a return of 15 percent on YBM stock. According to the dividend growth model, what should the stock price be today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued? Stock currently

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
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You've collected the following information from your favorite financial website.
52-Week Price
Lo
10.43 Acevedo .36
33.42
69.70
13.95
Manta Energy .80
20.74 Winter Sports .32
Hi
77.40
55.81
130.97
50.24
35.00
Current stock price
Stock (Dividend)
Georgette, Incorporated 1.54
YBM 2.20
Stock currently
Dividend
Yield %
2.6
3.8
2.5
5.2
1.5
PE
Ratio
6
10
10
6
28
Close
Price
13.90
40.43
89.01
15.43
??
According to analysts, the growth rate in dividends for YBM for the next five years is expected to be 19.5 percent. Suppose YBM meets
this growth rate in dividends for the next five years and then the dividend growth rate falls to 5 percent, indefinitely. Assume investors
require a return of 15 percent on YBM stock. According to the dividend growth model, what should the stock price be today?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Net Change
-.24
-.01
3.07
-.26
.18
Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued?
Transcribed Image Text:You've collected the following information from your favorite financial website. 52-Week Price Lo 10.43 Acevedo .36 33.42 69.70 13.95 Manta Energy .80 20.74 Winter Sports .32 Hi 77.40 55.81 130.97 50.24 35.00 Current stock price Stock (Dividend) Georgette, Incorporated 1.54 YBM 2.20 Stock currently Dividend Yield % 2.6 3.8 2.5 5.2 1.5 PE Ratio 6 10 10 6 28 Close Price 13.90 40.43 89.01 15.43 ?? According to analysts, the growth rate in dividends for YBM for the next five years is expected to be 19.5 percent. Suppose YBM meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5 percent, indefinitely. Assume investors require a return of 15 percent on YBM stock. According to the dividend growth model, what should the stock price be today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net Change -.24 -.01 3.07 -.26 .18 Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued?
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