Question\'s 9,10,11, and 12 9. Company X is expected to pay an end-of-year divid
ID: 1171488 • Letter: Q
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Question's 9,10,11, and 12
9. Company X is expected to pay an end-of-year dividend of S5 a share. After the dividend ils stock is expected to sell at $1 10. If the market capitalization ratelexpected return) is 8%, what is the current stock price? (a) $97.17 (b) $100.21 (c) $103.78 d) $106.48 10. Company Z's earnings and dividends per share are expected to grow indefinitely by 5% a year If next year's dividend is $10 and the market capitalization rate is 8%. If company Z were to distribute all its earnings, it could maintain a level dividend stream of $15 a share EPS-15. How much is the market actally paying per share for growth opportunities? (a) $122.90 b) $137.55 c) $145.83 (d) $157.44 11. Suppose that you take out a 5250.000 house mortgage from your local savings bank. The bank requires you to repay the mortgagein equal annual installments over the next 30 years. Suppose that the interest rate is 5% a year. Then what is the amount of mortgage payment each year? (a) $16,263 b) $13,452 c) $12,583 (d) $10,127 12. Consider a bomower that is approved for a standard 15-year, fully amortizing house mortgage with an original balance of 3500.000 and a note rate(annual interest rate) of 4.8%(Standard relers to a fixed rate ortgage contract with level payments.) What is the monthly mortgage payment for the borrower? (a) $24,000 (b) $13,028 c) $7,920 (d) $3.902Explanation / Answer
Answer to Question 9:
Year-end Dividend, D1 = $5
Year-end Stock Price, P1 = $110
Market Capitalization Rate, k = 8%
Current Stock Price = D1/(1+k) + P1/(1+k)
Current Stock Price = $5/1.08 + $110/1.08
Current Stock Price = $106.48
Answer to Question 10:
Year-end Dividend, D1 = $5
Growth Rate, g = 5%
Market Capitalization Rate, k = 8%
Current Stock Price = D1 / (k - g)
Current Stock Price = $10 / (0.08 - 0.05)
Current Stock Price = $333.33
Expected Stock Price = EPS / k
Expected Stock Price = $15 / 0.08
Expected Stock Price = $187.50
PVGO = Current Stock Price - Expected Stock Price
PVGO = $333.33 - $187.50
PVGO = $145.83
Answer to Question 11:
Amount borrowed = $250,000
Annual Interest Rate = 5%
Period = 30 years
Annual Payment * PVIFA(5%, 30) = $250,000
Annual Payment * (1 - (1/1.05)^30) / 0.05 = $250,000
Annual Payment * 15.37245 = $250,000
Annual Payment = $16,263
Answer to Question 12:
Amount borrowed = $500,000
Annual Interest Rate = 4.80%
Monthly Interest Rate = 0.40%
Period = 180 months or 15 years
Monthly Payment * PVIFA(0.40%, 180) = $500,000
Monthly Payment * (1 - (1/1.004)^180) / 0.004 = $500,000
Monthly Payment * 128.13705 = $500,000
Monthly Payment = $3,902
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