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Suppose a stock has the following information:
Required Return: 10% Dividend Paid Today: $1 Growth rate of dividends: 5%
(a) Given the information what should the current stock price be?
(b) If the growth rate of dividends increases to 6% and the dividend payment remains at $1. What should the stock price be? Comparing your answer to Part (a) what is the relationship between growth rate of dividends and stock price?
(c) If the required rate of return decreases to 9% and the dividend remains at $1 what should the rice of the stock be? Comparing your answer to Part (a) what is the relationship between the required rate of return and stock price? [Assume that the growth rate of dividends is 5%]
If you are offered $20 to draw a red ball from a bag that contains six green balls, two blue balls, and two red balls, how much would you be willing to pay for a ticket to draw?
ABA Inc. is considering a capital budgeting project that has an expected return of 22% and a standard deviation of 30%. What is the project's coefficient of variation? a. 1.20 b. 1.26 c. 1.32 d. 1.36 e. 1.42
Discuss how portfolio beta compares to your own willingness to take risks. Discuss whether you would rather hold an individual stock or a portfolio of stocks.
A short position in a futures contract is
Suppose you deposit $8,000 in 3 years, $3,000 in 6 years, and $9,000 in 8 years. How much will you have in your account after 8 years if the account earns 3% compounded annually?
Tapley Inc. currently has total capital equal to $6 million, has zero debt, is in the 40% federal-plus-state tax bracket, has a net income of $2 million, and pays out 40% of its earnings as dividends. What is the stock's current price per share (befo..
What is the effective cost of bank financing if the loan amount is $100,000, interest is discounted (advance), a 1% commitment fee is paid up front, and a 9% compensating balance is required? The stated interest rate is 8%
A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 9.00% with interest paid annually. if the current market price is $900, What will be the approximate capital gain of this bond over the next year if its yield to m..
Foxy News (currently trading at $50/share) is considering purchasing its rival Pulitzer Publications. Both firms currently have 1,000,000 shares outstanding and Pulitzer generates $1,500,000 in free cash flows each year. If Pulitzer's shareholders ar..
Suppose you are at the Best Buy cashier with your new laptop computer that costs $1000, tax-free. You are offered two options: An instant $150 up front discount, making the laptop $850. Pay nothing for 2 years, then pay the full $1,000.
You have purchased a call option (100 contracts) on Mercer Corporation common stock. The option has an exercise price of $20.00 and Mercer’s stock currently trades at $20.00. Calculate your net profit on the option if Mercer Corporation’s stock price..
A bond that pays interest annually yields a rate of return of 10.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond?
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