1. The stock of Carlo Elise Corporation went from Php50 to Php56 last year. The firm also paid Php2 in dividends. Compute the rate of return. 2. In the following year, the dividend was raised to Php2.25. However, a bear market developed toward the end of the year, and the stock price declined from Php56 at the beginning of the year to Php48 at the end of the year. Compute the rate of return or (loss) to stockholders. 3. Assume the real rate of return in the economy is 2.5 percent, the expected rate of inflation is 5 percent, and the risk premium is 5.8 percent. Compute the risk-free rate (Formula 1-3) and required rate of return. 4. Assume the real return in the economy is 4 percent. It is anticipated that the consumer price index will go from 200 to 210. Shares in common stock are assumed to have a required return one-third higher than the risk-free rate. Compute the required return on common stock.

1. The stock of Carlo Elise Corporation went from Php50 to Php56 last year. The firm also paid Php2 in dividends. Compute the rate of return. 2. In the following year, the dividend was raised to Php2.25. However, a bear market developed toward the end of the year, and the stock price declined from Php56 at the beginning of the year to Php48 at the end of the year. Compute the rate of return or (loss) to stockholders. 3. Assume the real rate of return in the economy is 2.5 percent, the expected rate of inflation is 5 percent, and the risk premium is 5.8 percent. Compute the risk-free rate (Formula 1-3) and required rate of return. 4. Assume the real return in the economy is 4 percent. It is anticipated that the consumer price index will go from 200 to 210. Shares in common stock are assumed to have a required return one-third higher than the risk-free rate. Compute the required return on common stock.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 18P

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