Answer:
The price of the stock 10 years from now will be $38.45
Explanation:
The constant growth rate in the company's stock is,
growth rate = (2.08 - 2) / 2 = 0.04 or 4%
To calculate the price today, we use the expected dividend for the next year that is D1. To calculate the price of the share 10 years from now, we will use the D11 that is expected dividend in the 11th year from now.
D11 = D0 * (1+g)^11
D11 = 2 * (1+0.04)^11 = $3.0789
The price of the stock 10 years from now will be,
P = D11 / r - g
P = 2 * (1+0.04)^11 / 0.08 - 0.04
P = $38.446 rounded off to $38.45
Answer: Selling large dollar-value items
Lending money to individuals or businesses
Extending payment periods
Explanation:
Answer:
Explanation:
a.)
Given the different probabilities with their respective returns, you will find the firm's expected return using the following formula;
return; r = SUM (probability *expected return)
The formula above means that you multiply each probability by return , then sum the results.
r = (0.25*0.10) +(0.50*0.15) + (0.25*-0.02)
r = 0.025 +0.075 -0.005
r = 0.095 or 9.5%
Therefore, the correct answer is 9.5%. The choices given do not apply.
b.)
Use the Capital Asset Pricing Model(CAPM) formula to calculate the required return. Additionally, since we have inflation rate, adjust the formula to that inflation rate since investors would require a high rate to compensate for it.
Inflation adjusted CAPM required return; r = risk free + inflation + beta(Market return - risk free)
r = 0.045 + 0.03 + 1.50(0.11 - 0.045)
r = 0.075 + 0.0975
r = 0.1725 or 17.25%
Therefore, the required rate is 17.25%
Answer:
C, a company makes a new line of kitchen appliances
Explanation:
Just did it
