Chapter 7 homework

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Jan 9, 2024

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4, 5, 12, 16, 21, 24, 27, 29, 41, 43 4 P/E Ratios. Favorita Candy's stock is expected to earn $2.40 per share this year. Its P/E ra p/e ratio 18 earning per 2.4 price 43.2 5 Dividend Yield. BMM Industries pays a dividend of $2 per quarter. The dividend yield on its dividend pq 2 8 divident yiel 4.8% stock price 166.67 12 Dividend Discount Model. Integrated Potato Chips just paid a $1 per share dividend. You expect the dividend to grow steadily at a rate of 4% per year. (LO7-2) share divide 1 rate 4% a 0 1 2 3 1 1.04 1.08 1.12 b discount rate 12% stock price 13 c stock price i 14.62 d 0 1 2 3 dividends 1 1.04 1.08 1.12 selling price 14.62 total cash f 1 1.04 1.08 15.75 e present valu 16 What is the expected dividend in each of the next 3 years? If the discount rate for the stock is 12%, at what price will the stock sell? What is the expected stock price 3 years from now? If you buy the stock and plan to sell it 3 years from now, what are your expected cash fows What is the present value of the stream of payments you found in part (d)? Compare your

16 Constant-Growth Model. Gentleman Gym just paid its annual dividend of $3 per share, and a 0 1 2 3 discount rate divideds 3 3.15 3.31 divident inc selling price 94.48 3 3.15 97.79 stock price 31.5 b stock price 45 new discoun 0.12 21 Constant-Growth Model. Here are data on two stocks, both of which have discount rates o Stock A Stock B Return on equity 15% 10% discount rat 0.15 Earnings per share 2 1.5 Dividends per share 1 1 a stock A 50.00% Stock B 66.67% b stock A 7.50% Stock B 3.33% c stock A 13.333333 Stock B 8.5714286 24 Rate of Return. Steady As She Goes Inc. will pay a year-end dividend of $3 per share. Inve dividend 3.00 growth rate 0.04 a fv 30 What price should the stock sell at? The discount rate is 15%. How would your answer change if the discount rate was only 12%? Why does the answer What are the dividend payout ratios for each firm? What are the expected dividend growth rates for each stock? What is the value of each stock? If the stock currently sells for $30 per share, what is the expected rate of return on the stoc

rate of retur 14.00% b rate of retur 17% stock price 24 27 Nonconstant Growth. You expect a share of stock to pay dividends of $1.00, $1.25, and $1 0 1 2 3 dividentds 1 1.25 1.5 selling price 20 total cash fow 1 1.25 21.5 a discount rate 0.1 stock price 18.90 b dividend yiel 5.29% c dividend yiel 6.61% 29 Nonconstant Growth. Tattletale News Corp. has been growing at a rate of 20% per year, an 0 1 2 3 dividends 2 2.4 2.88 3.46 selling price 100.22 total cash f 2 2.4 2.88 103.68 price 72.44 a next dividen 2.4 b stock price 72.44 41 Growth Opportunities. Trend-Line Inc. has been growing at a rate of 6% per year and is ex growth rate 6% dividend 5 If the expected rate of return on the stock is 16.5%, what is the stock price? What is the stock price if the discount rate for the stock is 10%? What is the dividend yield for year 1? What will be the dividend yield at the start of year 2? If the last dividend paid was $2, what will the next dividend be? If the discount rate is 15% and the steady growth rate after 3 years is 4%, what should the

a rate of retur 10% price 125 b earning per 8 asset value 80 c growth value 45 43 Forms of Efficient Markets. Fill in the missing words from the following list: semi-strong, str If the market expects a 10% rate of return on Trend-Line, at what price must it be selling? If Trend-Line's earnings per share will be $8 next year, what part of its value is due to asse What part of its value is due to growth opportunities? There are three forms of the efficient-market theory. Tests that have found there are no pat share price changes provide evidence for the weak form of the theory. Evidence for the st of the theory is provided by tests that look at how rapidly markets respond to new public in and evidence for the semi-strong form of the theory is provided by tests that look at the p of professionally managed portfolios.

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