Question

6. Stock ABC is currently selling for $16.72. It has just paid an annual dividend of...

6. Stock ABC is currently selling for $16.72. It has just paid an annual dividend of $0.80 per share, which is expected to grow at 4.5 percent indefinitely. The risk-free rate is 6 percent. The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent.

a) What is the expected return on Stock ABC?

b) Is Stock ABC overpriced, underpriced, or correctly priced if it has a beta of 0.6?

c) Is Stock ABC above, below, or on the SML?

d) What is the equilibrium price of Stock ABC? Assume the dividend grow rate remains at 4.5 percent.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Jet, Inc. just paid a dividend $2.00 per share. The firm’s stock is selling today in...
Jet, Inc. just paid a dividend $2.00 per share. The firm’s stock is selling today in the market for $70 per share. The dividend is expected to grow at the rate of 7% per year for the foreseeable future. If you require a return of 10% on this stock should you purchase it? No, because the stock is overpriced $3.33. Yes, because the stock is underpriced $3.33. No, because the stock is overpriced $1.33. Yes, because the stock is underpriced...
#24 Stock A has a beta of 1.2 and an expected return of 12%. Stock B...
#24 Stock A has a beta of 1.2 and an expected return of 12%. Stock B has a beta of 0.7 and an expected return of 8%. If the risk-free rate is 2% and the market risk premium is 8%, what is true about the two stocks? A. Stock A is underpriced and stock B is overpriced B. Both stocks are underpriced C. Stock A is overpriced and stock B is underpriced D. Both stocks are correctly priced E. Both...
Stock A has an expected return of 13% and a standard deviation of 22%, while Stock...
Stock A has an expected return of 13% and a standard deviation of 22%, while Stock B has an expected return of 15% and a standard deviation of 25%. If an investor is less risk-averse, they will be likely to choose… A. Stock A B. Stock B Stock A has a beta of 1.8 and an expected return of 12%. Stock B has a beta of 0.7 and an expected return of 7%. If the risk-free rate is 2% and...
Q#25 The beta of Ricci Co.'s stock is 2.8, whereas the risk-free rate of return is...
Q#25 The beta of Ricci Co.'s stock is 2.8, whereas the risk-free rate of return is 8 percent. If the expected return on the market is 17 percent, then what is the expected return on Ricci Co.? Suppose this stock has an expected return of 40%. Is this security properly priced? A) 42.80%, overpriced B) 33.20%, overpriced C) 42.80%, underpriced D) 33.20%, underpriced
11. The current market price of a share of common stock is $67.50. The cash dividend...
11. The current market price of a share of common stock is $67.50. The cash dividend paid now is $5 [ D0 ]. The dividends are expected to grow at a constant rate of 8% per year for ever. The required rate of return on the common stock is 16%. Then the following is true according to the constant dividend growth model:     a. the stock is underpriced   b. the stock is overpriced   c. the stock is correctly priced
Stock X has a beta of 1.55 and is expected to generate the following returns given...
Stock X has a beta of 1.55 and is expected to generate the following returns given the three different economic states, boom, normal and recession. State Probability Expected return Boom 50% 45% Good 30% 25% Poor 20% -20% The market risk premium is 12% and the risk-free rate is 7%.   Based on the above information, the stock is (underpriced, overpriced, correctly priced) , therefore we should (buy, sell, hold)  the stock. This stock plots (on, above, below)  SML.
Stock ABC is trading at $50 per share. The stock has an expected year-end dividend of...
Stock ABC is trading at $50 per share. The stock has an expected year-end dividend of $5 (i.e., D1=$5), which is expected to grow at a constant rate throughout time (g). The stock’s return has a covariance with the market portfolio return of 0.06. The standard deviation of the market portfolio is 0.2. The risk free rate is 6%, and the market risk premium is 8%. If you believe that the stock is efficiently priced, what would be your forecast...
ABC company stock has a beta of 1.3. The market risk premium is 6.7 percent, and...
ABC company stock has a beta of 1.3. The market risk premium is 6.7 percent, and the risk free rate is 4 percent. The company’s last dividend was $2.00 per share, and the dividend is expected to grow at 4.8 percent indefinitely. The stock currently sells for $25. What is the company’s cost of capital using the SML approach? Using the dividend growth model?    A. 8.81 percent; 8.00 percent     B. 12.71 percent; 12.80 percent     C. 11.90 percent;...
Floyd Industries stock has a beta of 1.20. The company just paid a dividend of $.50,...
Floyd Industries stock has a beta of 1.20. The company just paid a dividend of $.50, and the dividends are expected to grow at 6 percent per year. The expected return on the market is 11 percent, and Treasury bills are yielding 5.2 percent. The most recent stock price for the company is $69. a. Calculate the cost of equity using the DDM method. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal...
Floyd Industries stock has a beta of 1.2. The company just paid a dividend of $.50,...
Floyd Industries stock has a beta of 1.2. The company just paid a dividend of $.50, and the dividends are expected to grow at 6 percent per year. The expected return on the market is 11 percent, and Treasury bills are yielding 4.6 percent. The most recent stock price for Floyd is $63. a. Calculate the cost of equity using the DDM method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g.,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT