Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 8, Problem 16PS
Summary Introduction
To select: Choice between stock A and stock B in the passive index portfolio.
Introduction : The value of alpha is measured as a vigorous
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Based on current dividend yields and expected growth rates, the expected rates of return on stocks A and B are 11% and 14%, respectively. The beta of stock A is .8, while that of stock Bis 1.5. The T-bill rate is currently 6%, while the expected rate of return on the S&P 500 index is 12%. The standard deviation of stock A is 10% annually, while that of stock B is 11%. If you currently hold a passive index portfolio, would you choose to add either of these stocks to your holdings?
A stock is expected to pay a dividend of $1.65 at the end of the year. The required rate of return is rs = 9.32%, and the expected constant growth rate is g = 7.2%. What is the stock's current price?
A stock is expected to pay a dividend of $1.26 at the end of the year. The required rate of return is rs = 10.82%, and the expected constant growth rate is g = 1.3%. What is the stock's current price?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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- The current price of XYZ stock is OMR80.00. Dividends are expected to grow at 5% indefinitely and the most recent dividend was OMR2.75. What is the required rate of return on XYZ stock?arrow_forwardA stock is expected to pay a dividend of $1.27 at the end of the year. The required rate of return is rs = 14.57%, and the expected constant growth rate is g = 2.6%. What is the stock's current price?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choicesarrow_forwardA stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is 10.50%, and the expected constant growth rate is g = 6.40%. What is the stock's current price?arrow_forward
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- A stock is expected to pay a dividend of $2.20 at the end of the year (D1 = 2.2). The required rate of return is rs = 12%, and the expected constant growth rate is g = 4.0%. What is the stock's current price? 2. Star Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D1 = $1.50). The stock sells for $40 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?arrow_forwardA stock is expected to pay a dividend of $1.40 at the end of the year. The required rate of return is 8.50%, and the expected constant growth rate is g = 5.00%. What is the stock's current price? Group of answer choices 40.00 16.47 28.00 36.00 10.37arrow_forwardPeteCorp's stock has a Beta of 1.29. Its dividend is expected to be $3.17 next year, and will grow by 5% per year after that indefinitely. Assume the risk-free rate is 5%, and the Market Risk Premium is 6%. The stock price would currently be estimated to be $ ____________ Margin of error for correct responses: +/- .05 Rounding and Formatting instructions: Do not enter dollar signs, percent signs, commas, X, or any words in your response. Do not round any intermediate work, but round your *final* response to 2 decimal places (example: if your answer is 12.3456, 12.3456%, or $12.3456, you should enter 12.35).arrow_forward
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