Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 3.9, Problem 2EQ
Repeat Question t (b) but now assume that the stock pays dividends of $2 per share at year-end. What is the relationship between the total
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A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $56.
Required:
a. What is the total rate of return on the stock?
b. What are the dividend yield and percentage capital gain?
c. Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case?
A Required
What is the total rate of return for the stock?
B Required
What is the dividend yield and percentage capital gain?
C Required
Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case? (Negative amounts should be indicated by a minus sign. Enter your answers as a whole percent.)
A stock is selling today for $75 per share. At the end of the year, it pays a dividend of $6 per share and sells for $81.
Required:
a. What is the total rate of return on the stock?
b. What are the dividend yield and percentage capital gain?
c. Now suppose the year-end stock price after the dividend is paid is $69. What are the dividend yield and percentage capital gain in this case?
3. What is the intrinsic value of a share of stock if expected dividends are $8/share and the expected price
year is $90/share? Assume a discount rate of 10%. What is the expected return and what should
be the decision from an investor?.
in 1
Chapter 3 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 3.8 - Suppose you by 100 shares of stock initially...Ch. 3.8 - Repeat Question 1 assuming your initial margin was...Ch. 3.9 - Suppose you sell short 100 shares of stock...Ch. 3.9 - Repeat Question t (b) but now assume that the...Ch. 3 - Prob. 1PSCh. 3 - What are some different components of the...Ch. 3 - Prob. 3PSCh. 3 - Prob. 4PSCh. 3 - In what cirecumstances are private placements more...Ch. 3 - Prob. 6PS
Ch. 3 - Prob. 8PSCh. 3 - How do margin trades magnify both the upside...Ch. 3 - A market order has: (LO 3-2) a. Price uncertainty...Ch. 3 - Where would an illiquid security in a developing...Ch. 3 - Prob. 12PSCh. 3 - Prob. 13PSCh. 3 - Prob. 14PSCh. 3 - Prob. 15PSCh. 3 - Old Economy Traders opened an account to...Ch. 3 - Prob. 17PSCh. 3 - Prob. 18PSCh. 3 - Prob. 19PSCh. 3 - Prob. 20PSCh. 3 - Prob. 21PSCh. 3 - Prob. 22PSCh. 3 - Prob. 23PSCh. 3 - Prob. 24CCh. 3 - Prob. 25CCh. 3 - Prob. 1CPCh. 3 - Prob. 2CPCh. 3 - Are all of the brokerage firms suitable ii you...Ch. 3 - Choose two of the firms listed. Assume that you...Ch. 3 - Prob. 4WM
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- A stock is selling today for $75 per share. At the end of the year, it pays a dividend of $6 per share and sells for $87. A. What is the total rate of return on the stock? B. What are the dividend yield and percentage capital gain? C. Now suppose the year-end stock price after the dividend is paid is $72. What are the dividend yield and percentage capital gain in this case?arrow_forward(a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (c) Compute the expected value of the ex-dividend stock price at time 2. (d) Compute the expected value of the ex-dividend stock price at time 0. (e) Compute the expected return (over a single-period) on the stock of DTI at time 0 (in %).arrow_forwardBASIC (Questions 1-18) 1. Calculating Returns Suppose a stock had an initial price of $87 per share, paid a dividend of $2.15 per share during the year, and had an ending share price of $98. Compute the percentage total return. What was the dividend yield? The capital gains yield? LO 1arrow_forward
- Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: PO = D1/(r - g). Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. Such a stock should have a value of zero until it actually begins paying dividends. The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount.arrow_forward(3) According to the Dividend-Discount Model Equation, the price of the stock today (Po) is equal to the present value of all of the expected future dividends (e.g., Divi, Div..., Divx) investors will receive, along with the cash flow from the sale of the stock (i.e., Ps) in year N (see, the following Equation). Div Div ₂ + L + 1+FE (1+E)² Po = + PN Div N (1+re)^ *(1+r)^ List three practical challenges (i.e., limitations) when using the Equation to calculate stock price (Po) in practice.arrow_forwardSuppose that you have just purchased a share of stock for $32. The most recent dividend was $2.2 and dividends are expected to grow at a rate of 4% indefinitely. What must your required return be on the stock?arrow_forward
- What is the rate of return on a stock that currently sells for GH₵ 36 and is expected to sell for GH₵ 40 a year from now? Dividends in the coming year are pegged at GH₵ 4 per share. What are the dividend yield and capital gain component of the return?arrow_forwardPls help detailedarrow_forwardSuppose you have just purchased a share of stock for $58.50. You expect a dividend next period of $2.50 which will grow at a rate of 15% indefinitely. What must your expected rate of return be on the stock you have just purchased? Select one: A. 4.27% B. 15.38% C. 19.27% D. 19.91% E. None of the abovearrow_forward
- 4. Tannery Worldwide's common stock is currently selling for $48 a share. If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00, what is the rate of return implicit in the current stock price?arrow_forwarda. Using the dividend discount model, what is the current market value of a stock (i.e., PO) that has a par value of $0.10 per share, a dividend growth rate of 5%, and an expected dividend of $ .80 per share at the end of the year, assuming your required rate of return for the stock is 12.5%? Assume the market is at equilibrium.arrow_forward3. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (Do) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now (D10, D20, D50). Assume that the stock's required return (r,) is 8.40%. Note: Carry and round the calculations to four decimal places. Time Period Dividend's Expected Future Value Dividend's Expected Present Value Now $1.0000 End of Year 10 $1.3053 $0.7633 X End of Year 20 $1.7038 V $0.2887 X End of Year 50 $4.3289 X $0.0709 Xarrow_forward
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