The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year. Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return . The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder. The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

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Answer 1

Question

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

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Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)

Congratulations! Your portfolio returned 16.7% last year, 2.5% better than the market return of 14.2%. Your portfolio had a standard deviation of earnings equal to 18%, and the risk-free rate is equal to 4.4%. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.29, did you do better or worse than the market from a risk/return perspective? The Sharpe's measure of your portfolio is (Round to two decimal places.)

On January 1, 2020, Simon Love's portfolio of 15 common stocks had a market value of $258,000. At the end of May 2020, Simon sold one of the stocks, which had a beginning-of-year value of $26,900, for $31,400. He did not reinvest those or any other funds in the portfolio during the year. He received total dividends from stocks in his portfolio of $11,900 during the year. On December 31, 2020, Simon's portfolio had a market value of $246,000. Find the HPR on Simon's portfolio during the year ended December 31, 2020. (Measure the amount of withdrawn funds at their beginning-of-year value.) Simon's portfolio HPR during the year ended December 31, 2020, is %. (Round to two decimal places.)

Answer 2

Question

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

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Answer 3

Question

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

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Answer 4

Question

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

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Answer 5

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 6

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 7

Chapter 18, Problem 11PS

A

Summary Introduction

To calculate: The current stock price according to DDM is to be determined when year-end dividend is $8 and the market capitalization rate is 10% per year.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 8

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 9

B

Summary Introduction

To calculate: The implied value of ROE on future investment opportunities when expected earnings per share are $12.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 10

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 11

C

Summary Introduction

To calculate: The amount market paying per share for growth opportunities is to be determined.

Introduction: The stock price is defined as the expected cash flow from the stock which is provided at discounted value at required rate of return.

The return on equity (ROE) can be defined as the return which is generated by the company’s operation for its equity holder.

The constant growth Discount Dividend Model (DDM) represents that the dividends grow at fixed percentage annually. This model is safe and helpful for the very mature companies which have history of regular dividends payment.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 18 - Prob. 1PS Ch. 18 - Prob. 2PS Ch. 18 - Prob. 3PS Ch. 18 - Prob. 4PS Ch. 18 - Prob. 5PS Ch. 18 - Prob. 6PS Ch. 18 - Prob. 7PS Ch. 18 - Prob. 8PS Ch. 18 - Prob. 9PS Ch. 18 - Prob. 10PS

Solution Summary: The author calculates the implied value of ROE on future investment opportunities when expected earnings per share are 12.

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