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The Blinkelman Corporation has just announced that it plans to introduce a new solar panel that will greatly reduce the cost of solar energy. As a result, analysts now expect the company's earnings, currently (year 0) $1 per share to grow by 50 percent per year for the next three years, by 25 percent per year for the following three years, and by 8 percent per year, thereafter.
Blinkelman does not currently pay a dividend, but it expects to pay out 20 percent of its earnings beginning two years from now. The payout ratio is expected to become 50 percent in five years and to remain at that level.
The company's marginal tax rate is 40 percent. If you require a 20 percent rate of return on a stock such as this, how much would you be willing to pay for it today?
What is the risk-neutral valuation of a six-month European put option to sell a security for a price of 100 when the current price is 105, the interest rate is 10%, and the volatility of the security is 0.30?
You are borrowing money to buy your first house that costs $350,000. You go to the first bank you see, Big Attitude Bank, and they are charging 4.25% interest. What is your annual payment to Big Attitude? What is your annual payment to Super Cheap Ba..
You have $150,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 12.85 percent. Stock X has an expected return of 10.69 percent and a beta of 1.26, and Stock Y has an expecte..
Two students graduate in December 2016 at an age of 22. Student A immediately starts saving $300 per month until they are 35 years old, and does not save any money after that. Student B does not start saving until they are 35 years old, and then save..
Sarah Wiggum would like to make a single investment and have $2.4 million at the time of her retirement in 34 years. She has found a mutual fund that will earn 5 percent annually. How much will Sarah have to invest? today? If Sarah earned an annual r..
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Consider a financial model with two trading times {0,1}, a single stock S that pays no dividents, and a bank. At t=0, we can buy or sell any number of shares of the stock at the price S0 = $40 per share. at t=1 the value of one share of stock will be..
Portfolio Return Year-to-date, Company X had earned a -2 percent return. During the same time period, Company Y earned 8 percent and Company Z earned 12 percent. If you have a portfolio made up of 60 percent Company X, 30 percent Company Y, and 10 pe..
Bubba's Steakhouse has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: Materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,610; depreciation, $640; and other fixed costs, $600. Each st..
Two investors are evaluating General Electric’s stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. one investor normally holds stocks for 2 years and the other normally holds stoc..
Gardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $20 million investment in new machinery.
A corporate bond with a face value of $1000 and a coupon rate of 5% has only 4 years remaining to maturity. Because of its credit rating, this bond has a yield of 6.5%. The rating agencies just upgraded the bond, and as a result its discount rate fel..
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