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umka21 [38]
3 years ago
11

A stock just paid an annual dividend of $2.8. The dividend is expected to grow by 10% per year for the next 4 years. The growth

rate of dividends will then fall steadily by 1.75% per year, from 10% in year 4 to 3% in year 8 and stay at that level forever. The required rate of return is 12%. Attempt 2/10 for 10 pts. Part 1 What is the expected dividend in 8 years
Business
1 answer:
k0ka [10]3 years ago
7 0

Answer:

$39.53    

Explanation:

The first step is to find the dividends growth

D1        $2.80 * 1.10 = $3.08

D2      $3.08 * 1.10 = $3.388

D3      $3.388 * 1.10 = $3.727

D4      $3.727 * 1.10 = $4.1

D5      $4.1 * 1.0175 = $4.171

D6      $4.171 * 1.0175 = $4.244

D7      $4.244 * 1.0175 = $4.318

D8      $4.318 * 1.03 = $4.448

From the year 8 onward, the growth remains at 3% forever. So the value of the stock at the year end 8 would be:

Perpetuity at the year 8 = $4.448  * (1 + 3%) / (12%-3%)  = $50.9

Now, we will discount all the dividends to the year 8 and the stock value at 12% required rate of return to find the value of stock at year zero.

Value of Stock at Y0 = D1 / (1 + 12%)^1    + D1 / (1 + 12%)^2    + D1 / (1 + 12%)^3    + D1 / (1 + 12%)^4    + D1 / (1 + 12%)^5    + D1 / (1 + 12%)^6    + D1 / (1 + 12%)^7  

+ D1 / (1 + 12%)^8  + Stock Value / (1 + 12%)^8

= $39.53

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According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the risks of individual
Paha777 [63]

Answer:

A) True

Explanation:

The purpose of creating a portfolio is to diversify investment and achieve risk reduction as famously conveyed by the proverb, "do not put all the eggs in a single basket".

The Capital Asset Pricing Model (CAPM) was developed by William Sharpe and John Lintner. The model explains the relationship between expected return of an investor and the investment risk.

Return earned by a portfolio is the weighted average return of the individual stock returns.

CAPM helps calculate expected return of an investor by the following formula:

Return = R_{f} \ + B(R_{m}\ -\ R_{f}  )

wherein, R_{f} = Risk free rate of return yielded by treasury bonds

              B = Beta, which is a coefficient which conveys the degree of responsiveness of security return in relation to the market return.

             R_{m}= Return which can be earned on market portfolio

Thus, the relevant risk with respect to a portfolio refers to an individual stock's share of contribution to the portfolio risk.

6 0
3 years ago
Is anyone a Steelers fan? Or Washington FT fan
vodka [1.7K]

Answer:

steelersssss all the way babyyyy

Explanation:

6 0
3 years ago
(Vetro Inc) Vetro Inc. is a glass manufacturer that produces glasses of every shape and type. Recently it signed a contract to s
Nataliya [291]

Answer:

Answer is explained in the explanation section below.

Explanation:

Data Given:

LSL = 4.96 cm

USL = 5.04 cm

Mean = 5 cm

SD = 0.01 cm

1. Capability Index:

Cpk = min ( \frac{USL - Mean }{3SD} , \frac{Mean - LSL}{3SD} )

So, now, we need to find the following:

\frac{USL - Mean }{3SD} = \frac{5.04 - 5 }{3 * 0.01}

\frac{USL - Mean }{3SD} = \frac{0.04}{0.03}

\frac{USL - Mean }{3SD} = 1.33

Similarly,

\frac{Mean - LSL }{3SD} = \frac{5 - 4.96 }{3 * 0.01}

\frac{Mean - LSL }{3SD} = \frac{0.04}{0.03}

\frac{Mean - LSL }{3SD} = 1.33

So,

Cpk = min ( \frac{USL - Mean }{3SD} , \frac{Mean - LSL}{3SD} ) = 1.33

2. Maximum Standard deviation allowed.

Let SD be maximum standard deviation allowed.

So,

Mean - 3SD = 4.96     Equation 1

Mean + 3SD = 5.04    Equation 2

Subtracting Equation 2 from 1, we have

6SD = 5.04 - 4.96

6SD = 0.08

SD = 0.0133

3 0
3 years ago
After reading the new account insert in his monthly​ statement, Tony Mercadante determined that the FDIC considers a joint accou
yarga [219]

Answer: Please refer to Explanation

Explanation:

According to the Federal Deposit Insurance Corporation, the limit to the amount a person can be insured for is, $250,000 per depositor, per insured bank.

That means that Tony's account at a balance of $120,712 is covered completely as it is well below $250,000.

Their Joint account is also completely covered at $60,099.

Cynthia however does not have complete coverage as her bank account exceeds to the coverage limit by $3,629 which will not be covered.

Should be noted that should she transfer this excess to the joint account then she should be fully covered.

5 0
3 years ago
You’ve decided to buy a house that is valued at $1 million. You have $250,000 to use as a down payment on the house, and want
LuckyWell [14K]

Answer: $6581.58

Explanation:

Based on the information given in the question, the mortgage payment per month will be calculated thus:

= [P x I x (1+I)^N]/[(1+I)^N-1]

where,

P = Principal = $750000

I = Interest rate per month = 10%/12 = 0.10/12 = 0.008333

N = number of installments = 30 × 12 = 360

Then, the equated monthly installment will be:

= [750000 × 0.008333 × 1.008333^360] / [1.008333^360-1]

= [750000 × 0.008333 × 19.8350386989] / [19.8350386989 - 1]

= 123964/18.835

= 6581.58

Under this loan proposal, your mortgage payment will be $6581.58 per month.

4 0
2 years ago
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