If the interest rate is approximately equal to the growth rate of dividends, the price of a stock will be close to Select one: a. infinity O b. It is impossible to tell based on the information above O c. 100000 O d. 0
Q: a. Assuming the current market price of the stock reflects its intrinsic value as computed using the…
A: Intrinsic value of a share is the value which an investor is going to get by holding the shares. If…
Q: An analyst uses the Grinold-Kroner model to estimate the stock market return. The analyst forecasts…
A: Grinold and kroner model is defined as the calculation of an expected returns regarding the stock,…
Q: What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a…
A: Computation:
Q: The PE ratlð is O A. how much a stock is expected to earn. O B. how much earnings are going to grow.…
A: The answer will be "c" - how much an investor is willing to pay for $1 of earnings.
Q: Assume that the risk-free rate is 6.00% and the market risk premium is 6.75%. What is the expected…
A: Given: Risk free rate=6% Market risk premium = 6.75%
Q: a. How far away is the horizon date? I. The terminal, or horizon, date is Year 0 since the value of…
A: “Since you have posted multiple questions, we will solve the first question for you. If you want any…
Q: The blue stair-step line depicts the value of future stock dividends. The orange stair-step line…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
Q: You're considering purchasing Proctor and Gamble Stock. Suppose the risk-free interest rate is 5.0%…
A: If CAPM hold good, Expected Return on Stock = Risk Free rate + (Market Rate of Return -Risk Free…
Q: For the next question, consider the two stocks, A and B, in the following table. Pt represents…
A: The net profit or loss on the investment over a particular time period is term as the rate of…
Q: If D1 = $2.83, g (which is constant) = 2%, and P0 = $45.18, what is the stock’s expected dividend…
A: Given information: Next year dividend (D1) is $2.83 Constant growth rate is 2% Price at year 0 is…
Q: e. Use equation below to calculate the present value of this stock. Po= Do(1+e) - D Assume that g -…
A: As per the dividend growth model An investor in equity shares buys the shares at fixed fair price.…
Q: The value of an asset is the present value of the expected returns from the asset during the holding…
A: The dividend valuation models are important tools of securities valuation. These models help in the…
Q: Assume that the risk-free rate is 7.5% and the market risk premium is 5%. What is the required…
A: We need to use CAPM to calculate required rate of return. The equation is rs = Rf +Beta(Rm-Rf) Where…
Q: An equity share costing Rs.100/- pays no dividends. The possible prices that the share might sell…
A: A statistical measure that represents the variation in the return on the stock is term as the…
Q: Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not…
A: Expected Return refers to minimum yield that an investor wants from an investment made. It is…
Q: .Consider stock XYZ. If the current book value is 100, the current earnings per share is 10, the…
A: Given, Current Book Value = 100 Current Earnings per share = 10 Growth Rate =3% Discount Rate = 13%…
Q: A stock just paid a dividend of DO = $1.75. The required rate of return is rs=12.0%, and the…
A: In this question we need to compute the current stock price from the below given details : Just paid…
Q: what is the stock’s expected dividend yield
A: Dividend Yield Method is one of the method used calculating the Cost of equity capital. This…
Q: As an equity analyst you are concerned with what will happen to the required return to Universal…
A: Rf = 4% Rm = 11% Beta = 1.2 Slope of SML = Rm - Rf = 11% - 4% = 7%
Q: Find the value of a stock using the constant growth DDM, if the last dividend paid is $3 and the…
A: V0 = D1 /(Ke – g), V0= value of stockD1 =Expected dividend next year, i.e. D1 =D0(1+g)g = Expected…
Q: What is the current stock price?
A: Information Provided: Dividend Paid = $1.50 Required rate of return = 8.90% Constant growth rate =…
Q: What is the current stock price?
A: Information Provided: Dividend paid just now = $1.50 Required rate of return = 8.5% Constant growth…
Q: What is the current stock price?
A: SOLUTION:- Dividend (D0)= $1.50Required rate of return (rs) =10.1%Growth rate (g)= 4.0% Calculation…
Q: Suppose that the initial dividend on a stock is £1. The interest rate is 3 percent and the growth…
A: Initial dividend (D1) = £1 Interest rate (r) = 3% Growth rate (g) = 2%
Q: A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is 4%.…
A: A model that represents the relationship of the required return and beta of a particular asset is…
Q: eturn of Sandhill Cyclicals common shares is 1.2 times as sensitive to macroeconomic information as…
A: Given information :
Q: A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 9.0%, and the…
A: The dividend discount model will be used here. As per the dividend discount model the current value…
Q: A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 17.5%, and the…
A: Given: Current dividend = $1.50 Required return = 17.5% Growth rate = 4%
Q: What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1.…
A: Given problem relates with SML or Security market line model
Q: A stock justpaid a dividend of $0.8. The required rate of return is 10.6%, and the constantgrowth…
A: price of stock =dividend×1+gr-g
Q: Suppose you have predicted the following returns for stock C in three possible states of nature.…
A: The expected rate of return is the weighted return that an investor receives based on the various…
Q: Suppose that the market can be described by the following three sources of systematic risk with…
A: Equilibrium rate refers to the long-term exchange rate that is equal to the purchasing power…
Q: You live in a world where assets are priced by the CAPM. The following information is given to you…
A: The expected payoff from the stock X=£105.00 Expected return of stock X = 18% Risk-free rate =5%…
Q: The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements…
A: The required return and the expected return for the stock will be the same, if the market is in…
Q: (a) What is meant by the term alpha? (b) Suppose the CAPM holds. A stock has a beta of 0.8. If the…
A: CAPM is a Capital asset pricing model which is used to compute the expected return on the stock by…
Q: As an equity analyst you are concerned with what will happen to the required return to Universal…
A: * Expected return on stock can be calculated by using the following equation * Rst=Rf+Beta(Rm-Rf)…
Q: Find the value of a stock using the constant growth DDM, if the last dividend paid is $3and the…
A: GIVEN, D0=$3beta = 0.85rm-rf=5%rf=3%
Q: onsider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its…
A: A model that helps to evaluate the value of the stock with the assumption that the dividend will…
Q: The expected risk premium on a stock is equal to the expected return on the stock minus the:…
A: The return that the investors are expected in order to invest in a particular investment is referred…
Q: Assume an investor uses the constant-growth DVM to value a stock. Listed are various situations that…
A: The constant growth model seems to be a method of evaluating stocks. It presupposes that a firm's…
Q: Assume that the risk-free rate is 6.5% and the market risk premium is 6%. What is the required…
A: Given Risk free Rate = 6.5% Market Risk Premium = 6% Beta =1.80
Q: The current price is 40$ and the dividend paid is 10$ what will be the divided yield a. 0.04…
A: Current price= 40$ Dividend paid= 10$
Q: Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds…
A: Yes. It is reasonable to assume that Treasury bonds will provide higher returns in recessions than…
Step by step
Solved in 2 steps
- Now assume that the stock is currently selling at $30.29. What is its expected rate of return?Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?The dividend yield (i.e. D1/P0) is a good measure of the expected return on a common stock under which of the following circumstances? g = 0 g > 0 g < 0 g is expected to remain constant over time under no circumstances
- If the stocks are less risky than bonds, then the risk premium on stock may be zero. Assuming that the risk-free interest rate is 2 percent, the growth rate of dividends is 1 percent and the current level of dividends is $70, use the dividend-discount model to compute the level of the S&P 500 that is warranted by the fundamentals. Compare the result to the current S&P 500 level of 4300, and explain one possible reason for the difference.A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 12.6%, then what is the stock price? Please explain and show calculations.Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Which of the following statements is CORRECT? (Hint: Dividend yield (D1/P0) is the difference between Re and g. Calculate Re first by using CAPM.) A B Beta 1.10 0.90 Constant growth rate 7.00% 7.00% Stock A must have a higher stock price than Stock B. Stock A must have a higher dividend yield than Stock B. Stock B’s dividend yield equals its expected dividend growth rate. Stock B must have the higher required return. Stock B could have the higher expected return.
- What is the duration of a constant-dividend preferred stock at issuance, when its market rate of return is 4.2%? Note that a constant-dividend preferred stock is just a no-growth perpetuity. Its market rate of return is comparable to the YTM for a bond. Round your calculations to the nearest 0.01, i.e., two decimal places. Also show excel formula7.In the formula r = (D1/P0) + g, what does (D1/P0) represent?a. the expected price appreciation yield from a common stock.b. the expected dividend yield from a common stock.c. the dividend yield from a preferred stock.d. the interest payment from a bond.e. None of the above.8. According to the constant growth in dividends price formula given in the textbook, if the dividend to be paidone year from today increases and all other factors remain constant, the price of the stock will __________;if the growth rate of all future dividends increases and all other factors remain constant, the price of the stockwill __________; and if the required rate of return increases and all other factors remain constant, the priceof the stock will __________.a. decrease; decrease; decreaseb. increase; increase; decreasec. decrease; increase; decreased. increase; increase; increasee. None of the answers listed above are correct.9. Which of the following is correct about the equilibrium price of a $1,000…What is the standard deviation of the returns on a stock given the following information? Could you please show the work? State of Economy Probability of state of Economy Rate of return if state occurs Boom 0.3000 0.1500 Normal 0.6500 0.1200 Recession 0.0500 0.0600 Average 0.3333 0.1100
- You live in a world where assets are priced by the CAPM. The following information is given to you regarding stock X. The expected payoff from the stock X=£105.00 Expected return of stock X = 18% Risk-free rate =5% Market Risk Premium = 9% Assume there are no other changes, except that the correlation between the returns of Stock X and the market becomes twice what it is currently. How would this change affect the current price of Stock X? Explain why the change of the correlation causes the observed change in the stock price. [hint: Provide a risk-based explanation]1. (a) What are the two components of most stocks’ expected total return?(b) How does one calculate the capital gains yield and the dividend yield of a stock?(c) If D1 = RM3.00, P0 = RM50, and the expected P at t=1 is equal to RM52, what are the stock’s expected dividend yield, capital gains yield, and total return for the coming year?2. (a) Are stock prices affected more by long-term or short-term performance? Explain.(b) A stock is expected to pay a dividend of RM2 at the end of the year. The required rate of return is rs = 12%. What would the stock’s price be if the growth rate were 4%?What would the stock’s price be if the growth rate were 0%?3. If D0 = RM4.00, rs = 9%, and g = 5% for a constant growth stock, what are the stock’s expected dividend yield and capital gains yield for the coming year?4. (a) Explain what is meant by the terms “horizon (terminal) date” and “horizon (terminal) value”.(b)Suppose D0 = RM5.00 and rs = 10%. The expected growth rate from Year 0 to Year 1 (g0…A stock that a growth rate of 0% must have a dividend yield that is equal to the required return Select one: True False
