1) A company is expected to have earnings of $1.35 per share in one year, $1.83
ID: 2769330 • Letter: 1
Question
1) A company is expected to have earnings of $1.35 per share in one year, $1.83 per share in two years, and $2.55 per share in three years. The dividend payout ratio is also expected to remain at 30% over the next three years. The leading P/E ratio is expected to increase up to 20 in two years. If the required rate of return is 10%, what is a fair value for this stock today?
2)
Although they are all somewhat different, which of the following is the most like holding a put option if you own the underlying stock?
a.
stop-loss order
b.
limit-buy order
c.
stop-buy order
d.
limit-sell order
E.
market order
Which of the following identifies a method for calculating beta?
a.
Regress the monthly closing stock price against the monthly closing value of the S&P 500 Index using five years of historical data. The slope coefficient is beta.
b.
Regress the daily stock return against the daily return of the NYSE Composite index using one year of historical data. The slope coefficient is beta.
c.
Same as "a" except that the intercept is beta instead of the slope coefficient.
d.
Same as "b" except that the intercept is beta instead of the slope coefficient.
e.
Same as "b" except that you cannot use daily data to calculate beta.
a.
stop-loss order
b.
limit-buy order
c.
stop-buy order
d.
limit-sell order
E.
market order
Explanation / Answer
1)
PE=20 year Earnings payout retained PVIF PV of RE 1 1.35 0.405 0.945 0.90909 0.86 2 1.83 0.549 1.281 0.82644 1.06 3 2.55 0.765 1.785 0.75131 1.34 PV of re 3.26 AVG RE 1.09 MP= 20*1.09 MP= 21.8Related Questions
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