You received a dividend of $6.68 this morning and are attempting to decide if yo

Question

You received a dividend of $6.68 this morning and are attempting to decide if you should hold onto this stock. You expect this stock to grow at 14% for 3 years. After that, you think they will grow at 13%. Given the level of risk, you need a return of 26%. How much is this stock worth?

You are considering adding stock in BAMEB Motorcycles to your portfolio. You found their Beta at 0.47, the risk free rate as proxied by 10-year US Treasuries at 0.55%, and return on the market as proxied by the S&P 500 at 12.38%. What return do you need to buy this stock?

Microsoft has a Beta of .32 and you are needing the required return. You know the risk free rate is 1.02%, and the return on the market is 6.44%. What is your required return in order to invest in this company?

What is the Coeffient of Variation of an investment given at standard deviation of 3.2%, and the following outcomes:

outcome one: probabilty .41 return 21%

outcome two: probability .21 return -10%

outcome three: probability .38 return -1%

Explanation / Answer

Answer:

Market value of stock = Present value of next 3 years dividend + PV of stock price at the end of 3rd year

= PV of {$6.68(1+0.14) + $6.68(1+0.14)2 + $6.68(1+0.14)3} + PV of {Dividend in 4th year/(required rate od return - Growth rate)}

= $7.62/1.26 + 8.68/ (1.26)2 + 9.9/(1.26)3 + PV of {9.9(1.13) / (0.26-0.13)}

= $6.05 + 5.47 + 4.95 + 86.05/(1.26)3 = $59.48 (ans)

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.