The price of the common stock Concept Introduction: The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+), Chapter 7, Problem 1LO , additional homework tip 1

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

17. The South African government's distributive stance is clear given its prioritisation of social spending, which includes grants and subsidised goods. Discuss the advantages and disadvantages of an in-kind subsidy versus a cash grant. Use a graphical illustration to support your arguments. [15] 18. Redistributive expenditure can take the form of direct cash transfers (grants) and/or in-kind subsidies. With references to the graphs below, discuss the merits of these two transfer types in the presence and absence of a positive externality. [14] 19. Expenditure on education and healthcare have, by far, the biggest redistributive effect in South Africa' by one estimate dropping the Gini-coefficient by 10 percentage points. Discuss the South African government's performance in health and education provision by evaluating both the outputs and outcomes in these areas of service delivery. [15] 20. Define the following concepts and provide an example in each case: tax rate structure, general…

Summarise the case for government intervention in the education market

Should Maureen question the family about the history of the home? Can Maureen access public records for proof of repairs?

Answer 2

Question

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Answer 6

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)

where

D₁= dividend given by the corporation at the end of the year

P₀₌ Current value of the stock P₁= the expected sales price of the stock

K_e= The required return on equity

The Generalized Dividend Valuation Model

where

D_n= dividend given by the corporation at the end of n periods

P₀₌ current price of a stock

P_n= Price of stock after n-periods

K_e= the required return on equity

The Gorden-Growth Model

This model estimated the price of the stock when corporations strive to give regular dividend at regular interval of time.

D₀₌the most recent dividend paid

G= the expected constant growth rate in dividends

K_e₌the required return on an investment in equity

Answer 7

Chapter 7, Problem 1LO

To determine

The price of the common stock

Concept Introduction:

The Common stock is the security which is issued by corporations to raise capital. Usually, people who purchase such securities are called stockholder. They are paid a dividend as income

Answer 8

Expert Solution & Answer

Explanation of Solution

There are various models to determine the price of a common stock. These are as follows:

The one-period valuation Model

Under this model, the price of the stock is calculated only for a year period, i.e., an investor keeps a stock only for a year period.

To value the stock today, the present discounted value of the expected cash flow(future payment) is calculated. The cash flow consists of dividend payment and sale price.

P0=D1(1+ke)+P1(1+ke)