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A share of stock with a beta of 0.68 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 3%, and the market risk premium is 6%. a. Suppose investors believe the stock will sell for $60 at year-end. Is the stock a good or bad buy? What will investors do? b. At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today?
What is the NPV of investing today? Verify that the hurdle rate rule of thumb gives the correct time to invest in this case.
Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio. What is Komatsu’s sustainable rate of growth?
The interest rate on a five-year Treasury bonds is 3.1 percent, the rate on six-year T-bonds is 2.9 percent, and the rate on seven-year T-bonds is 2.6 percent. Using the expectations theory, compute the expected one-year interest rates in (a) Year 6 ..
what would be the compound annual return on investment be for the investors who purchased the stock and held it for four years?
Suppose Finish Line has a beta of 1.3 and an expected return of 10%. The risk-free rate is 1% and the market risk premium is 10%. What is the difference between Finish Line’s expected return and the expected return based on the equation for the secur..
Explain the feature in detail and explain the importance of yield-to-maturity.
Bellamee Company has bonds outstanding with five years to maturity and a face value of $5,299. The bonds are currently priced at their face value. If the bonds have a coupon rate of 25 percent, then what is Bellamee's after-tax cost of debt financing..
If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securities?
As the text notes, firms should adopt positive NPV projects, and reject negative NPV projects. But what if a project has a $0 NPV? Should they accept the project or reject it? Explain.
A company had a tractor destroyed by fire. The tractor originally cost $129,000 with accumulated depreciation of $63,600.
According to the unbiased expectations theory of the term structure of interest rates, what are the expected one-year rates during years 4, 5, and 6?
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,100,000 and will last for 6 years.
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