Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 21, Problem 19P

Harbin Manufacturing has 10 million shares outstanding with a current share price of $20 per share. In one year, the share price is equally likely to be $30 or $18. The risk-free interest rate is 5%.

  1. a. What is the expected return on Harbin stock?
  2. b. What is the risk-neutral probability that Harbin’s stock price will increase?
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Suppose that a firm with a stock price of $80 just announced that it expects to pay a $100 per share liquidating dividend in 1 year, although the exact amount of the dividend depends on the performance of the company this year. Assume that the CAPM is a good description of stock price returns and that the stock’s beta is 1.5, the market’s expected return is 12%, and the risk-free rate is 5%. 1) Is the stock priced correctly now? 2) What is the alpha of the stock? 3) What would you expect to happen to the stock price in an efficient market after the announcement? Give typing answer with explanation and conclusion
A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant rate of 6.0 percent each year. The beta of this stock is 1.30, the risk-free rate is 4.0 percent, and the expected return on the market is 10.0 percent. Determine how much you should be willing to pay (the intrinsic value) for this stock today. Assume that CAPM is the correct model for required returns. 536.55 $54.83 $63.97 $73:10 545.69
Assume now that CAPM holds. You need to estimate the price of one stock of company XYZ. You expect that this company’s earnings per share will be $4 in one year, your estimation of Present Value of Growth Opportunities today is $40. The company has just paid out the dividend for the previous financial year. Expected return of market portfolio is equal to 20%, its standard deviation is equal to 55% and covariance between the returns on XYZ and market portfolio is 0.5. The risk-free rate is 5%. Find the price of a stock.

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Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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