In an equity research report, an analyst calculates a forward earnings yield of 12 per- cent. Noting that this yield is considerably higher than the 7 percent yield on a 10-year Treasury, she heads her report with a buy recommendation. Could she be making a mistake?
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In an equity research report, an analyst calculates a forward earnings yield of 12 per- cent. Noting that this yield is considerably higher than the 7 percent yield on a 10-year Treasury, she heads her report with a buy recommendation. Could she be making a mistake?
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- Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?You have been tasked with using the FCF model to value Julie’s Jewelry Co. After your initial review, you find that Julie’s has a reported equity beta of 1.6, a debt-to-equity ratio of .5, and a tax rate of 21 percent. In addition, market conditions suggest a risk-free rate of 5 percent and a market risk premium of 9 percent. If Julie’s had FCF last year of $49.0 million and has current debt outstanding of $123 million, find the value of Julie’s equity assuming a 4.8 percent growth rate in FCF. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)You are a financial analyst and are comparing two stocks. For Stock A, you expect that it will pay a dividend of 60 dollars next year and you expect these dividends to grow at a rate of 3% per annum. The required return on this stock is 10%. For Stock B, you expect that it will pay constant dividends of 5 with a required return on Stock B of 12%. What is the difference in stock price? Calculate the difference as price of Stock A minus the price of Stock B.
- You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8% per year. The dividend payout ratio is 60% and the required rare or return on Laduma shares is 15%. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice?Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever: Suppose you observe that the stock is selling for $50.00 per share, what would you conclude about either your belief of the stock’s required rate of return or the CFO’s estimate of the company’s return on equity? (select all that apply)The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 0.6 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is .8. What is the…
- The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 0.6 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is .8. What is the…The financial controller is considering the use of the Capital Asset Pricing Model as a surrogate discount factor. The risk-free rate is 5 percent. The information in the table below has been used by company management in calculating the stock beta value which is 1.151and the expected return on the stock which is 12.5%.Year Stock Market Index share Price2011 2000 $15.002012 2400 $25.002013 2900 $33.002014 3500 $40.002015 4200 $45.002016 5000 $55.002017 5900 $62.002018 6000 $68.002019 6100 $74.002020 6200 $80.002021 6300 $83.33e) Calculate the CAPMf) Explain why this figure may differ from that calculated…Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?
- Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever: Suppose that you are confident that 10% is the required rate of return on the stock. What does the market price of $50.00 per share imply about the market’s estimate of the company’s expected return on equity? (please give a number)The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively. What is the standard deviation of these returns? Group of answer choices 13.29 percent 14.14 percent 16.50 percent 17.78 percent 19.05 percent show your work please and let me know if we can solve it by financial calculatorYou are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year. The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice? required: D(1) = D (3) = P(T) = P(0) = Buy/sell: Net Procceed: Buy/sell: