1. Rouster and arts corp. pays an annual dividend rate of 10.00% on its preferre
ID: 2415463 • Letter: 1
Question
1. Rouster and arts corp. pays an annual dividend rate of 10.00% on its preferred stock that currently return 13.40% and has a par value of $100. What is the vaule of Rouster and Arts Corp.'s stock?
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The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00, and dividends are expected to grow at a constant rate of 4.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the PV of the dividend paid today (Do) and the PV of the dividends expected to be paid 10 and 20 years from now (D10 and D20). Assume that the stock's required return (r) is 5.40%. Note: Carry and round the calculations to four decimal places. Time Period Dividend's Expected Expected Dividend's Future Value Present Value Now End of Year 10 End of Year 20 End of Year 50Explanation / Answer
Valuation of Stock
Current Stock Price=Current Dividend(1+Dividend Growth rate)/(Required rate of return-Dividend Growth rate)
=((100*10%)(1+0))/(13.4%-0%)
=10/13.4%
=$1567.16
Stock vaule of Rouster and Arts Corp.'s is $ 1567.16
(2) Answer to point no.2
Current dividend =$ 1
Required rate of return from stock=5.4%
Dividend Growth Rate annually=4.5%
Present value Dividend paid today =Dividend Paid(1+Dividend Growth rate)*PVF at time end of the year
=1(1+.045)*.948
=1.045*.948
=$0.99
Present Value of Dividend expected to be paid on 10th year = (1+Dividend growth)^10*Present value factor
=1.045^10*.59
=1.55*0.59
=$0.92
Present Value of Dividend expected to be paid on 20th year = (1+Dividend growth)^20*Present value factor
=1.045^20*0.35
=2.41*0.35
=$0.84
3.(11)
A stock market is public market for trading companies Shares
Difference between the price at which a dealer sell securities and price at which buys securities is called Spread
BID Price=$ 31.75
ASK Price=$$32
Spread=$0.25
Profit from the transaction=Spread*No of Shares
=$0.25*1000
=$250
A document filed with SEC that declares and describes the new security that the firm is issuing is called Prospectus
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