INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 18, Problem 13PS
A
Summary Introduction
To calculate: The intrinsic value of share of Xyrong stock is to be determined with the given information.
Introduction: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
B
Summary Introduction
To calculate: The expected one year holding period return of Xyrong stock is to be determined when the market price of share is $100.
Introduction:
When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
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The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporation
has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per
share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on all
reinvested earnings forever.
Required:
a. What is the intrinsic value of a share of Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now,
what is your expected 1-year holding-period return on Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
> Answer is complete but not entirely correct.
$
a. Intrinsic value
b. Expected one-year holding-period return
99.41
11.05 X…
The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on all reinvested earnings forever.
Required:
What is the intrinsic value of a share of Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
The risk-free rate of return is 6%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporation has a
beta coefficient of 2.3. Xyrong pays out 45% of its earnings in dividends, and the latest earnings announced were $9.00 per share.
Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all
reinvested earnings forever.
a. What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Intrinsic value
b. If the market price of a share is currently $22, and you expect the market price to be equal to the intrinsic value one year from now,
what is your expected 1-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to
2 decimal places.)
Expected one-year holding-period return
%
Chapter 18 Solutions
INVESTMENTS(LL)W/CONNECT
Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - Prob. 4PSCh. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Prob. 8PSCh. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 5CPCh. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CP
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY