Question

Gareth owns 1 share of stock A and 1 share of stock B. In 1 year...

Gareth owns 1 share of stock A and 1 share of stock B. In 1 year from today, the total value of his holdings is expected to be 175.63 dollars. Stock A is currently priced at 88.06 dollars, has an expected return of 10.62 percent, and is expected to pay a dividend of 4.38 dollars in 1 year from today. Stock B is currently priced at 82.11 dollars and is expected to pay a dividend of 6.11 dollars in 1 year from today. What is the expected return for stock B? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Homework Answers

Answer #1

Given that,

Gareth owns 1 share of stock A and 1 share of stock B

In one year, total value = $175.63

current price of stock A Pa = $88.06

Current price of stock B Pb = $82.11

expected dividend for stock A, Da = $4.38

expected dividend for stock b, Db = $6.11

Expected return of stock A ra = 10.62%

So, price of stock A at year 1, is PA1 = (Pa*(1+ra) - Da) = (88.06*1.1062 - 4.38 = $93.03

Similarly, price of stock B at year a is PB1 = (Pb*(1+rb) - Db) = (82.11*(1+rb) - 6.11)

So, equating total value, we get

93.03 + (82.11*(1+rb) - 6.11) = 175.63

=> rb = 8.04%

So, Expected return on stock B is 8.04%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Demarius owns investment A and 1 share of stock B. The total value of his holdings...
Demarius owns investment A and 1 share of stock B. The total value of his holdings is 2,443.27 dollars. Investment A is expected to pay annual cash flows to Demarius of 380 dollars per year with the first annual cash flow expected later today and the last annual cash flow expected in 6 years from today.   Investment A has an expected annual return of 11.56 percent. Stock B is expected to pay annual dividends of 37.01 dollars forever with the...
Demarius owns investment A and 1 share of stock B. The total value of his holdings...
Demarius owns investment A and 1 share of stock B. The total value of his holdings is 2,196.22 dollars. Investment A is expected to pay annual cash flows to Demarius of 250 dollars per year with the first annual cash flow expected later today and the last annual cash flow expected in 6 years from today. Investment A has an expected annual return of 11.01 percent. Stock B is expected to pay annual dividends of 43.2 dollars forever with the...
Chaz owns investment A and 1 share of stock B. The total value of his holdings...
Chaz owns investment A and 1 share of stock B. The total value of his holdings is $350. Stock B is expected to be priced at $90.32 in 2 years, is expected to pay dividends of $12.32 in 1 year and $15.93 in 2 years, and has an annual expected return of 9.60 percent. Investment A has an expected return of R and is expected to pay $63 per year for a finite number of years such that its first...
Goran owns one share of stock of Platinum Water Packaging and one share of stock of...
Goran owns one share of stock of Platinum Water Packaging and one share of stock of White Mountain Health. The total value of his holdings is 211.44 dollars. Both stocks pay annual dividends that are expected to continue forever. The expected return for Platinum Water Packaging stock is 13.45 percent and its annual dividend is expected to remain at 8.97 dollars forever. What is the expected return for White Mountain Health stock if its next dividend is expected to be...
1. Youssef owns 1 share of stock A and 1 share of stock B. In 1...
1. Youssef owns 1 share of stock A and 1 share of stock B. In 1 year from today, the total value of his holdings is expected to be 173.48 dollars. Stock A is currently priced at 99.64 dollars, has an expected return of 12.93 percent, and is expected to pay a dividend of 4.17 dollars in 1 year from today. Stock B has an expected return of 12.97 percent and is expected to pay a dividend of 6.29 dollars...
Tim owns one share of stock A and one share of stock B. In one year...
Tim owns one share of stock A and one share of stock B. In one year from today, the total value of his holdings is expected to be $144. Stock A is currently priced at $59.76 has an expected return of 5.40 percent and is expected to pay a dividend of $3.74 in one year from today. Stock B has an expected return on 12.03 percen and is expected to pay a dividend of $4.89 in one year from today....
Norma has one share of stock and one bond. The total value of the two securities...
Norma has one share of stock and one bond. The total value of the two securities is 1,321.7 dollars. The stock pays annual dividends. The next dividend is expected to be 4.55 dollars and paid in one year. In two years, the dividend is expected to be 8.18 dollars and the stock is expected to be priced at 102.07 dollars. The stock has an expected return of 14 percent per year. The bond has a coupon rate of 10.9 percent...
What was the real rate of return over the past year (from one year ago to...
What was the real rate of return over the past year (from one year ago to today) for a stock if the inflation rate over the past year was 3.36 percent, the risk-free return over the past year was 5.58 percent, the stock is currently priced at 68.57 dollars, the stock was priced at 63.28 dollars 1 year ago, and the stock just paid a dividend of 1.19 dollars? Answer as a rate in decimal format so that 12.34% would...
What is the current share price of Indigo River Consulting stock if it is expected to...
What is the current share price of Indigo River Consulting stock if it is expected to pay a dividend of 4.92 dollars every quarter forever, the stock’s expected return is 8.16 percent per year, and the next dividend is expected in 3 months? What is the expected dividend for Indigo River Consulting expected to be in 3 months if the stock is expected to pay a constant dividend every quarter forever, the expected return is 17.24 percent per year, the...
Arjen owns investment A and 1 bond B. The total value of his holdings is 1,157...
Arjen owns investment A and 1 bond B. The total value of his holdings is 1,157 dollars. Investment A is expected to pay annual cash flows to Arjen of 128.37 dollars per year with the first annual cash flow expected later today and the last annual cash flow expected in 3 years from today. Investment A has an expected return of 16.42 percent. Bond B pays semi-annual coupons, matures in 19 years, has a face value of $1000, has a...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT