Question

You believe that the required return on Allegheny Publishing’s stock is 15.82 % and thus at...

You believe that the required return on Allegheny Publishing’s stock is 15.82 % and thus at today’s price of $35.08 you believe the stock is undervalued. Additionally, the stock is expected to pay a year-end dividend, D1, of $6.22 and grow perpetually at a constant rate of 4.17 percent per year. If you buy the stock and hold for one year when the price converges to the intrinsic value (after one year). What would be your capital gains yield from the one year investment (answer as a percentage)?

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
Problem 7-20 Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable...
Problem 7-20 Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 8% per year indefinitely. Stockholders require a return of 11% on RT's stock....
A. Value and Price You plan on holding a stock for two years. The annual dividend...
A. Value and Price You plan on holding a stock for two years. The annual dividend per share is $0.77 and you believe you will be able to sell the stock in two years for $26.00. You believe this stock should pay a 8% rate of return per year. If the stock is currently priced at $22.00 the stock is __________________. overvalued by less than 5% overvalued by more than 5% undervalued by less than 5% undervalued by more than...
A firm's stock has a required return of 10.00%. The stock's dividend yield (using the dividend...
A firm's stock has a required return of 10.00%. The stock's dividend yield (using the dividend to be paid in one year from today) is 5.50%. What is the amount of the dividend just received if the current stock price is $36 and the dividends grow annually at a constant rate?
One year ago, you purchased a stock at a price of $43.20 per share. The stock...
One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gains yield on this investment? Calculate the percentage to 2 decimal places. One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share....
Assume? you've generated the following information about the stock of? Bufford's Burger? Barns: The? company's latest...
Assume? you've generated the following information about the stock of? Bufford's Burger? Barns: The? company's latest dividends of ?$3.78 a share are expected to grow to $3.97 next? year, to $4.17 the year after? that, and to $4.38 in year 3. After? that, you think dividends will grow at a constant 5?% rate. a. Use the variable growth version of the dividend valuation model and a required return of 15?% to find the value of the stock. b. Suppose you...
A stock is expected to pay a dividend of $3.50 in one year.  Thereafter, the dividend is...
A stock is expected to pay a dividend of $3.50 in one year.  Thereafter, the dividend is expected to grow at a constant 5% rate.  Investors demand a return of 12%. a) What should the price of the stock be?  Show your work. b) If the stock price is $35, is the stock overvalued or undervalued?  Should you buy the stock? . The dividend discount model, is a reasonable model for mature companies in slow-growing industries.  But it may not be a good model for...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $1.25 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 11%. A. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that...
Suppose the required rate of return on a stock with Beta 1.2 is 18 per cent...
Suppose the required rate of return on a stock with Beta 1.2 is 18 per cent and risk free rate is 6 per cent. According to the CAPM a) What is the expected rate of return on the market portfolio? b) What is the expected rate of return of a zero-beta security? c) Suppose you select Stock ABC for Rs. 50 and the stock is expected to pay a dividend of rs. 2 next year and is expected to fetch...
One year ago, you purchased 500 shares of stock at a cost of $9500. The stock...
One year ago, you purchased 500 shares of stock at a cost of $9500. The stock paid an annual dividend of $2.20 per share. Today, you sold those shares for $25.5 each. What is the capital gains yield on this investment? What was your dividend yield on this investment? And what is total dollar return? What is Percentage return?
A stock is expected to pay a dividend of $3.50 in one year.  Thereafter, the dividend is...
A stock is expected to pay a dividend of $3.50 in one year.  Thereafter, the dividend is expected to grow at a constant 5% rate.  Investors demand a return of 12%. a) What should the price of the stock be?  Show your work. b) If the stock price is $35, is the stock overvalued or undervalued?  Should you buy the stock? 2. The dividend discount model, as employed in problem 1, is a reasonable model for mature companies in slow-growing industries.  But it may not...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT