Question
The risk-free rate of return is 4 percent, and the expected return on the market is...
The risk-free rate of return is 4 percent, and the expected
return on the market is 7.1 percent. Stock A has a beta coefficient
of 1.4, an earnings and dividend growth rate of 6 percent, and a
current dividend of $1.50 a share. Do not round intermediate
calculations. Round your answers to the nearest cent.
What should be the market price of the stock?
$
If the current market price of the stock is $45.00, what
should you do?
The stock be purchased.
If the expected return on the market rises to 13.8 percent and
the other variables remain constant, what will be the value of the
stock?
$
If the risk-free return rises to 5 percent and the return on
the market rises to 14 percent, what will be the value of the
stock?
$
If the beta coefficient falls to 1.3 and the other variables
remain constant, what will be the value of the stock?
$
Explain why the stock’s value changes in c through e.
The increase in the return on the market the required return
and the value of the stock.
The increase in the risk-free rate and the simultaneous
increase in the return on the market cause the value of the stock
to .
The decrease in the beta coefficient causes the firm to become
risky as measured by beta, which the value of the stock.
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