D. (1) The shares of BrightStark Ltd. are expected to generate the following possible returns in one year. What is the expected return over the next 12 months? Assume that the stock pays no dividends. Return 3% 4% 7% 15% 25% Probability 0.05 0.25 0.30 0.25 0.15 (2) Suppose Brightlight, Inc. was trading at $27.29 per share. At that time, it pays an annual dividend of $0.32 per share, and analysts have set a 1-year target price around $33.30 per share. What is the expected return on this stock? (3) What is the price for a stock with an expected dividend and price next year of $1 and $30, respectively? Use a 10% discount rate. (4) What is the current share price for a firm which has just paid a dividend of £2.5 and expects to increase its dividend by 3.5% every year, and the company has a required rate of return of 5%?
D. (1) The shares of BrightStark Ltd. are expected to generate the following possible returns in one year. What is the expected return over the next 12 months? Assume that the stock pays no dividends. Return 3% 4% 7% 15% 25% Probability 0.05 0.25 0.30 0.25 0.15 (2) Suppose Brightlight, Inc. was trading at $27.29 per share. At that time, it pays an annual dividend of $0.32 per share, and analysts have set a 1-year target price around $33.30 per share. What is the expected return on this stock? (3) What is the price for a stock with an expected dividend and price next year of $1 and $30, respectively? Use a 10% discount rate. (4) What is the current share price for a firm which has just paid a dividend of £2.5 and expects to increase its dividend by 3.5% every year, and the company has a required rate of return of 5%?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 8P
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