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The board of directors of API, a relatively new electronics manufacturer, has decided to beginning paying a common stock dividend to increase the attractiveness of the stock in the free market. The board plans to pay $3.50 per share in the coming year (i.e., next year) and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the period from 2009 - 2012 (see below). The company currently has a beta of 1.2, the rate of return for the market is expected to be 10% and the risk-free rate is currently 2%. Given this scenario, what is the current value of API's common stock? If the current market price is $50.00 per share, should you purchase this stock. Briefly, explain your answer. (HINT: This problem requires a three-part calculation to solve it). USE MS EXCEL TO CONDUCT YOUR CALCULATIONS (do NOT round your interim calculations, rather use links between the cells), then post your spreadsheet using this link (click on "Textbook Assignment 2," above).
Year Dividend
2012 $3.33
2011 $3.19
2010 $3.05
2009 $2.92
Kellner Motor Co.'s stock has a required rate of return of 12.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 6.00%. What was the last dividend, D0? Remember, give D0, not D1.
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You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) has a beta of 0.9. The risk-free rate is 3.1%, and the market risk premium is 5.5%. Keller currently se..
Expected Return If a company's current stock price is $25.00 and it is likely to pay a $.75 dividend next year. Since analysts estimate the company will have a 12% growth rate, what is its expected return?
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Both bond A and bond B have 9.8 percent coupons and are priced at par value. Bond A has 9 years to maturity, while bond B has 20 years to maturity. a. If interest rates suddenly rise by 2.4 percent, what is the percentage change in price of bond A an..
What features of interest rate swaps make them more or less attractive than financial futures as a risk management tool?
You are considering the purchase of crown bakery inc. Common stock that just paid a dividend of $20 per share. You expect the dividend to grow at a rate of 5.28 % per year, indefinitely. You estimate that a required rate of return of 12.25 percent wi..
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