Concept explainers
A firm pays a
a. Compute the required
b. The dividend payment increases.
c. The expected growth rate increases.
d. The stock price increases.
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FOUND.OF FINANCIAL MANAGEMENT-ACCESS
- Suppose =6%, 11%, and by = 1.3. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 7%. The slope of the SML remains constant. How would this affect г and n? I. г will increase by 1 percentage point and r will remain the same. II. Both г and n will decrease by 1 percentage point. III. Both г and will remain the same. IV. Both г and n will increase by 1 percentage point. -Select- V. r will remain the same and will increase by 1 percentage point. 2. Now suppose FRF decreases to 5%. The slope of the SML remains constant. How would this affect and n? I. г will decrease by 1 percentage point and r, will remain the same. II. г will remain the same and r will decrease by 1 percentage point. III. Both г and n will increase by 1 percentage point. IV. Both г and n will remain the same. V. Both г and will decrease by 1 percentage point. -Select- ✓ c. 1. Now assume that RF remains at 6%, but г increases to 12%. The slope…arrow_forwardSuppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…arrow_forwardSuppose rRF = 4%, rM = 11%, and bi = 1.6. A. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % B. 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will decrease by 1 percentage point. Both rM and ri will remain the same. Both rM and ri will increase by 1 percentage point. rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage point and ri will remain the same. C. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will remain the same. Both rM and ri will decrease by 1 percentage point. rM will decrease by 1 percentage point and ri will remain the same. rM will remain the same and ri will decrease by 1 percentage point. Both rM and ri will increase by 1 percentage point. D. 1. Now assume that rRF remains at 4%, but rM increases to 12%.…arrow_forward
- Suppose rRF = 4%, rM = 9%, and bi = 1.5. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. 1. Now assume that rRF remains at 4%, but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place. The new ri will be %. 2. Now assume that rRF remains at 4%, but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place. The new ri will be %.arrow_forwardSuppose rRF = 6%, rM = 10%, and bi = 1.8. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will remain the same. Both rM and ri will increase by 1 percentage point. rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage point and ri will remain the same. Both rM and ri will decrease by 1 percentage point. 2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will remain the same. Both rM and ri will decrease by 1 percentage point. rM will decrease by 1 percentage point and ri will remain the same. rM will remain the same and ri will decrease by 1 percentage point. Both rM and ri will increase by 1 percentage point. 1. Now assume that rRF remains at 6%, but rM increases to 11%.…arrow_forwardSuppose 5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose mr increases to 6%. The slope of the SML remains constant. How would this affect and n? 1. Both г and will increase by 1 percentage point. II. г will remain the same and n will increase by 1 percentage point. III. will increase by 1 percentage point and n will remain the same. IV. Both г and n will decrease by 1 percentage point. -Select- V. Both г and will remain the same. 2. Now suppose гRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both and will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both г and n will increase by 1 percentage point. -Select- V. Both г and will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The slope of the…arrow_forward
- Suppose rRF = 6%, rM = 12%, and bi = 1.1. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri? rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage point and ri will remain the same. Both rM and ri will decrease by 1 percentage point. Both rM and ri will remain the same. Both rM and ri will increase by 1 percentage point. 2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri? rM will remain the same and ri will decrease by 1 percentage point. Both rM and ri will increase by 1 percentage point. Both rM and ri will remain the same. Both rM and ri will decrease by 1 percentage point. rM will decrease by 1 percentage point and ri will remain the same. 1. Now assume that rRF remains at 6%, but rM increases to 13%.…arrow_forwardSuppose =5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 6%. The slope of the SML remains constant. How would this affect г and n? I. Both г and n will increase by 1 percentage point. II. г will remain the same and r will increase by 1 percentage point. III. г will increase by 1 percentage point and r will remain the same. -Select- IV. Both г and n will decrease by 1 percentage point. V. Both г and will remain the same. 2. Now suppose FRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both ' and n will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both and V. Both г and -Select- ✓ will increase by 1 percentage point. will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The…arrow_forwardAnswer the multiple-choice question below: 1. A stock price P0=$23, and is expected to pay D1 = $1.242 one year from now and to grow at a constant rate of g=8% in the future. Suppose this analysis was conducted in January 1, 2002, what is the expected price at the end of 2002 and what is the Capital gains yield? Select one: a. P 12/31/02 = $34.24; Capital gains Yield 2002 = $4.50% b. P 12/31/02 = $24.84; Capital gains Yield 2002 = $8.4% c. P 12/31/02 = $21.40; Capital gains Yield 2002 = $18.4% d. P 12/31/02 = $24.84; Capital gains Yield 2002 = $8.0%arrow_forward
- In the context of DDM, a dividend payout ratio equal to 100% implies that the future growth rate of dividends per share (DPS) will be equal to 0%. a. True b. Falsearrow_forwardReizenstein Technologies (RT) has just developèd a solar panel capable of generating 200% more electricity than any solar panel currently ón the market. As. result, RT is expected to experience a 15% annual growth rate for the next 5 vear By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 5% per year indefinitely. Stockholders require a return of 12% on RT's stock. The most recent annual dividend (Do), which was paid yesterday, was $1.75 per share. a. Calculate RT's expected dividends for t 1, t 2, t 3, t = 4, and t 5. b. Calculate the estimated intrinsic value of the stock today, Po. Proceed by finding the present value of the dividends expected at t 1, t 2, t 3, t = 4, and t = 5 plus the present value of the stock price that should exist at t = 5, P,. The Ps stock price can %3Darrow_forwardIf D1 = $1.25, g (which is constant) = 5%, and P0 = $20.18, what is the stock's expected dividend yield for the coming year? (Round your answer to 2 decimal places.) Please workout the problem do not use excel.arrow_forward