Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 8, Problem 8P
A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required
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The price of a non-dividend-paying stock is $100. Suppose that the
contínuously compounded risk-free rate is 1% per year, the market expected return is 7%
(continuously compounded), the stock beta is 1.2, and the stock price volatility is 30%
per year. Assume that the stock price follows the Geometric Brownian Motion.
a) Solve for the expected stock return per year
0.32
(0.01 + 1.2 * 0.07) + = 0.139
b) A derivative pays off $100 if the stock price is in the range between $90 and $110 in
year two and 0 otherwise. Determine its current price.
100
0.1392
= 75.73
c) What is the two-year 95% VaR if you short 100 shares of the stock today given
that N (0.05) = -1.645? Note that the stock price follows a log normal distribution
rather than a normal distribution
You are thinking of buying a stock priced at $98 per share. Assume that the risk-free rate is about 4.7% and the market risk
premium is 5.5%. If you think the stock will rise to $122 per share by the end of the year, at which time it will pay a $1.74
dividend, what beta would it need to have for this expectation to be consistent with the CAPM?
The beta is
(Round to two decimal places.)
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Chapter 8 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 8 - Define each of the following terms: a. Proxy;...Ch. 8 - Two investors are evaluating General Electric’s...Ch. 8 - A bond that pays interest forever and has no...Ch. 8 - Explain how to use the free cash flow valuation...Ch. 8 - Thress Industries just paid a dividend of 1.50 a...Ch. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - A company currently pays a dividend of $2 per...Ch. 8 - EMC Corporation has never paid a dividend. Its...
Ch. 8 - Current and projected free cash flows for Radell...Ch. 8 - A stock is trading at $80 per share. The stock is...Ch. 8 - Constant Growth Valuation Crisp Cookwares common...Ch. 8 - Prob. 10PCh. 8 - Brushy Mountain Mining Companys coal reserves are...Ch. 8 - Prob. 12PCh. 8 - Nonconstant Growth Stock Valuation Simpkins...Ch. 8 - Prob. 14PCh. 8 - Return on Common Stock
You buy a share of The...Ch. 8 - Prob. 16PCh. 8 - Value of Operations
Kendra Enterprises has never...Ch. 8 - Free Cash Flow Valuation
Dozier Corporation is a...Ch. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 1MCCh. 8 - Prob. 2MCCh. 8 - Prob. 3MCCh. 8 - Prob. 4MCCh. 8 - Use B&M’s data and the free cash flow valuation...Ch. 8 - Prob. 6MCCh. 8 - Prob. 7MCCh. 8 - Prob. 8MCCh. 8 - Prob. 9MCCh. 8 - Prob. 10MCCh. 8 - Prob. 11MCCh. 8 - Prob. 13MCCh. 8 - (1) Write out a formula that can be used to value...Ch. 8 - Assume that Temp Force has a beta coefficient of...Ch. 8 - Prob. 16MCCh. 8 - Now assume that the stock is currently selling at...Ch. 8 - Prob. 19MCCh. 8 - Prob. 20MCCh. 8 - Prob. 21MC
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