In practice, a common way to value a share of a stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price. Suppose a company just paid a dividend of $1.15. The dividends are expected to grow at 20% over the next five years. After five years, the dividends are expected to grow at 7% per year indefinitely. Assume a required rate of return of 12%, and that the market price of the stock is $33. Do you think that this stock could be a good investment to buy or to sell? Why is that?

Q: Mannix Corporation stock currently sells for $100 per share. The market requires a return of 11…

A: P0 = D0(1 + g) / (R – g) D0 = P0(R – g) / (1 + g) D0 = Most recent dividend per share  P0 = Stock…

Q: (a) A savings and loan association has offered her a 10-year small business loan at an annual…

A: Loan amortization refers to a schedule which is prepared to shows the periodic loan payments, amount…

Q: 7. Spence Company is considering a project that has the following cash flow. What is the project's…

A: Year    Cash flow 0          -1050 1           400 2           400 3           400 4           400

Q: 19. Suppose a firm relies exclusively on the payback method when making capital budgeting decisions,…

A: Payback method - It is a method used for  evaluating a project by measuring the time a project takes…

Q: You have two options to invest $1000 in: i) A $1050 face value bond with coupon rate c = 6%. ii) A…

A: Bond is the debt security that investors uses to reduce the risk and increase stable return from…

Q: What is trade-off credit and collection policies and its compositions?

A: A external financing is an agreement agreement understanding between partners that facilitates the…

Q: Find the mean of Terry's stock, giving the following information? Year Return 2011 22% 2012 -8% 2013…

A: Here, To Find: Mean =?

Q: Contrast the differences/similarities of common stocks and bonds. Explain how they would be used in…

A: The difference between the common stock and the bonds is that the stocks are the shares that define…

Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery…

A: Cashflows means movement  of cash it may be inflow or outflow. For the purposes of capital decision,…

Q: 14.Mariah invested $10,000 in a bank certificate of deposit at a rate of 5% interest compounded…

A: Investment (PV) = $10,000 Interest rate (r) = 5% Period (n) = 3 Years

Q: Bond Prices and Interest Rate Changes A 7 percent coupon bond with 8 years left to maturity is…

A: The current price of the bond is equal to the present value of all its future payments discounted at…

Q: Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will…

A: Cost of land = $120,000 Cost of building = $140,000 Cost of equipment = $250,000 Installation cost =…

Q: Example 61. An investor want to purchase a 3 year Rs 100 face value bond ng nominal interest rate of…

A: Purchase price is the present value of future cash inflows.   We know present value is calculated by…

Q: ou iust invested 549.000 that you received as an insurance settlement. How much more will this…

A: Money that is invested today earns interest. This makes the future value of money more than present…

Q: The regular price of a TV is $1,147 but it is marked down by 32%.  What is the sale price?   (round…

A: Sale price = $1147 Marked down = 32% Formula Sale price = Regular price*(1-Mark down ratio)

Q: Aisyah, a new investor cannot decide whether to invest in Stock Media Prima or Stock Astro, or in a…

A: Given, Two stocks Stock media prima and Stock Astro.

Q: Price Forward Dividend 1T Target Est $75.20 $0.80 $87.76 Given the information in the table, t he…

A: Given: Forward dividend = $0.80 Forward price = $87.76 Required return = 14.80%

Q: Yoko invested s4000 in a fund for 2 years and was paid simple interest. The total interest that she…

A: Investment (P) = $4000 Period (T) = 2 Years Interest amount (I) = $400

Q: Q3. Ricardo plans to own a 1 hectare lot after 10 years for an estimated cost of P5M. To accumulate…

A: Accumulated amount needed initially (X) = P 5000000 r = 15% n = 10 years Let A = Annual deposits…

Q: Kiwi Airlines has fixed operating costs of sh.5.8 million, and its variable costs amount to 20…

A: Degree of financial leverage (DFL) is calculated as ratio of earning before interest and taxes…

Q: 6. A P10,000, 8% bond pays dividends semi-annually and will be redeemed at 110% on April 29, 2027.…

A: Face value (F) = P 10000 Coupon (C) = (8% of F) / 2 = P 400 Redemption amount (R) = 110% of F = P…

Q: Consider an investment with the following cash flows: Year Cashflows PV of P 1 @ 14% 0 (P 31,000)…

A: Solution : Profitability index means Profit to Investment ratio in present worth of return on the…

Q: How long will it take an RESP to grow to $200,000, if the plan owner contributes $250 at the end of…

A: The payment flow which continues for a definite time period and terminates after lapse of time…

Q: It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is…

A: Beta is included to consider the premium for risk. Higher beta reflects a higher level of risk.

Q: Construct a market weighted index using 3 stocks below over a one year period to find the index…

A: Assume the index at T0 is 100. Hence

Q: A major function of brokers is: O storage and warehousing O bringing buyers and sellers together O…

A: A broker is an intermediary that brings sellers and buyers together. They are usually paid a…

Q: A small bridge can be constructed for $ 20,000 with a life of 30 years, after which it can be…

A: Initial cost = $20000 n = 30 years Annual cost = $1000 for 5 years, $1500 thereafter r = 12%

Q: You win a structured settlement in a lawsuit. Assume that the settlement pays $30,000 per year for…

A: Periodic Payment = $30,000 Time Period = 25 Years Discount Rate = 7%

Q: . A stock has an initial value of $7, and can go up by 1.2 or down by 0.7, the risk free rate is…

A: PInitial Value is $7 UP move is 1.2 Down move is of 0.7 Total periods 3 Exercise price is 0.13% Risk…

Q: Felix Jones, a recent engineering graduate, expects a starting salary of $35,000 per year. His…

A: Solution : Due to averaged Increment in salary was 5% for last several years & interest rate was…

Q: The readings for module 3 explain that past performance for a company or stock is not a guarantee of…

A: The earnings of a company are most basic measure of a stock's worth. Since you're buying a portion…

Q: Calculate the net present value of the proposed expansion projec

A: Net Present Value: It represents the profitability of the project in dollar amounts. It is computed…

Q: 10. A firm bought an equipment for ₱56,000. Other expenses including the installation amounted to…

A: In order to calculate the book value at the end of a prescribed period using sinking fund method, we…

Q: Flounder Company's net income for 2020 is $672,000, and 91.000 shares of common stock were issued…

A: The diluted earning per share is used to measure a company's earning per share by assuming that all…

Q: A corporation decides to deposit a fixed payment per quarter into an account earning 4% interest per…

A: Amount needed at the end of year 7 121000 Period  7 years No of period (Quarterly) 28 Rate of…

Q: 1. Sources of Tax Laws 2. Constitutional Limitations 3. Elements of Sound Tax System 4.…

A: A tax is a necessary fee or financial charge imposed by a government on an individual or an…

Q: A company is planning to install a new automated plastic-molding press. Two different presses are…

A: Investment cost = X Annual cashflow (A) = Revenue - Expenses Reject rate = r MARR = i = 10% n = 5…

Q: The Wright family wants to save money to travel the world. They purchase an annuity with a yearly…

A: The annuity value at end of 14 years can be calculated as future value of annuity.

Q: Ivanhoe Company’s income statement for the year ended December 31, 2020, contained the following…

A: There are 3 segments in the statement of cash flows:  Cash flow from operating activities Cash flow…

Q: A six year note for 3500 issued on april1, 2015 with interest at 6.9percent compounded semi annually…

A: To calculate the proceeds on January 1, 2017 firstly we should calculate the future value on…

Q: What is the Macaulay duration of a bond with a coupon of 5.8 percent, eleven years to maturity, and…

A: The Macaulay duration of a bond is the weighted average duration of the bond where we take the…

Q: D9 A stock has an initial value of $7, and can go up by 1.2 or down by 0.7, the risk free rate is…

A: Spot price (SP) =$7 Exercise price (EP) = $6 Expected future spot price (lower limit)on expiry date…

Q: Suppose that a random sample of twenty recently sold houses in a certain city has a mean sales price…

A: The basic assumption that sales are normally distributed are bell shaped symmetrical on both sides…

Q: The additional return earned by holding a commodity that is in short supply or a nonpecuniary gain…

A: Answer- The Convenience Yield - A premium that is earned by people who hold a physical commodity.…

Q: What is the standard deviation of Ava's stock, giving the following information: Year

A: Standard Deviation: It is a measure of statistics and measures the dispersion of the data relative…

Q: What is TRUE about the inverse relationship between price and yield: I. when interest rates rise;…

A: According to the inverse relationship between price and yield, as the yield increases, the price…

Q: g) Based on the findings above, which alternatives is the best for Aisyah to choose? Justify your…

A: The investment in a combination of different stocks is known as a portfolio. The purpose behind…

Q: A man borrowed Php 8000 from RCBC and agreed to pay the loan at the end of 9 months. The bank…

A: AMount borrowed is Php 8000 Time period is 9 months Amount received after discount is Php 5000 To…

Q: ABC Corp has an average inventory period (production process time + time before sale) of 36 days.…

A: An operating cycle is the amount of time it takes for a firm from getting the production started to…

Q: Could I Industries just paid a dividend of $1.45 per share. The dividends are expected to grow at a…

A: Stock price is defined as the maximum price that an investor is ready to pay for a stock. It is…

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.