Question

Objectives :-

1. The last dividend paid by New common stock was $5 per share. ($5 =D0 here.) The dividends are expected to grow at 6% forever. If the required rate of return on New stock is 11% annually, what is the price of this stock?

a. $100

b. $ 93

c. $83

d) $106

2. The beta coefficient of a stock is a measure of its

a. unsystematic risk

b. systematic risk

c. total risk

d. company specific risk

e. two of the above

3. You purchased a bond for $1200 one year ago and plan to sell it today for $1350. Today, you receive your only interest payment for the year of $90. Your percentage return on this investment is _____.

- 20.0%
- 9.0%
- 17.8%
- 7.5%
- 18.4%

4. What is the expected market risk premium if the expected return on asset A is 14% and the risk free rate is 5%? Asset A has a beta of 1.5

- 6%
- 9%
- 12%
- 19.5%
- 13.5%

Answer #1

The Kosten Warenhaus just paid a dividend of $2.00 (D0 =
$2.00)per share, and that dividend is expected to grow at a
constant rate of 7.50% per year in the future. The company’s beta
is 0.93, the market return is 9.0%, and the risk-free rate is
4.00%.
1. What is the required return on the stock, rs?
[Hint: Kj=Krf + B(Km – Krf)]
2. What is the company’s current stock price?

The Jackson Company has just paid a dividend of $3.00 per share
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risk-free rate is 10 percent; and the expected return on the market
is 14 percent. The firm's investment bankers believe that new
issues of common stock would have a flotation cost equal to 5
percent of the current market price. How much should...

HW #6
1. Use the following information to answer the
questions.
State
Probability
Stock A return
Stock B return
Good
Normal
Bad
0.3
0.6
0.1
8%
2%
-3%
5%
1%
-1%
(a). Given that you form a portfolio by investing $4,000 in
Stock A and $1,000 in Stock B, what is the expected return on your
portfolio?
(b).What is the variance and standard deviation of your
portfolio?
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The Pioneer Corporation currently paid a $3.00 per share
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forever at 3%, and investors require a 12% rate of return.
Pioneer's management is planning to enter new, risky markets to
increase its expected dividend growth. However, in response to the
increased risk, the investors' required rate of return will
increase to 15%. What must be the new value for the dividend growth
to justify entering the new, risky markets and...

Company X currently paid a $4 per share dividend on its common
stock. Dividends are expected to grow forever at 6% and investors
require a 15% rate of return. Company X's management is planning to
enter new, risky markets to increase its expected dividend growth.
However, due to increased risk, the investors required rate of
return will increase to 20%. What must be the new value for the
dividend growth to justify entering the new, risky markets and to
keep...

A share of common stock just paid a dividend of $1.25. If the
expected long-run growth rate for this stock is 5% and if the beta
for the stock is 2.23, what is the value of the stock? Assume the
risk free rate is 3% and the market rate of return is 12%.

General Gabardine Inc. last year paid a dividend of
$3.38 per share of common stock. The dividends are anticipated to
maintain an annual growth rate of 4.82% forever. If the stock
currently sells for $46.72, what is the required return
?

Runtan Inc. has just paid an annual dividend of $0.45 per share.
Analysts expect the firm's dividends to grow by 5% forever. Its
stock price is $34.9 and its beta is 1.7. The risk-free rate is 2%
and the expected return on the market portfolio is 8%.
What is the best guess for the cost of equity?

APCE common stock just paid a dividend of $1.00 per share, but
its dividend is expected to grow at 10 percent per year for four
years and then grow at 6 percent per year forever. How much should
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return.
20.24
27.29
16.62
25.83

Murray Telecom paid a $5.00 per share stock dividend last year
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per year for the next 4 years, 5 percent per year for the
subsequent 2 years, and then level off into perpetuity at a growth
rate of 2 percent per year. What should be the value of the firm’s
stock if the required rate of return on similar securities is 12
percent? Please show calculations!

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