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grandymaker [24]
3 years ago
13

Steady As She Goes Inc. will pay a year-end dividend of $3.40 per share. Investors expect the dividend to grow at a rate of 5% i

ndefinitely.
a. If the stock currently sells for $34.00 per share, what is the expected rate of return on the stock?

b. If the expected rate of return on the stock is 16.5%, what is the stock price?
Business
1 answer:
Bezzdna [24]3 years ago
3 0

Answer:

a.

15%

b.

29.57

Explanation:

The price of a stock whose dividends are expected to grow at a constant rate forever can be calculated using the constant growth model of the dividend discount model approach. The DDM values the stock based on the preset value of the expected future dividends from the stock. The price of the stock today under this model is,

P0 = D1 / r - g

Where

P0 = Price of stock

D1 = Future Dividend

r = Expected rate of return

g = Growth rate

a.

As we have the price of the price of the stock, we need to calculate the expected rate of return by extracting the formula.

r = (D1 / P0) + g

As per given data

P0 = Price of stock = $34

D1 = Future Dividend = $3.40

g = Growth rate = 5% = 0.05

Placing Values in the formula

r = ( $3.4 / 34 ) + 0.05

r = 0.15  = 15%

b.

As per given data

D1 = Future Dividend = $3.40

g = Growth rate = 5% = 0.05

r = Expected rate of return = 16.5%

Placing Values in the formula

P0 = D1 / r - g

P0 = $3.40 / (16.5% - 5%)

P0 = $29.57

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Answer:

(A) Half-year and (D) Half-year

Explanation:

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5 0
3 years ago
Suppose the town of boone has a total population of 50,000 people. of those, 45,000 people are employed. there are 1,000 full-ti
slega [8]
Population - 50,000
Employed - 45,000
Students not looking for work - 1,000

To calculate Boone's unemployment rate you'll use the formula: 
Unemployment rate = number of people unemployed / labor force

Those that fall into the unemployment category are those that are not working but are actively looking/wanting to work. Students, stay-at-home moms etc that are not wanting to work, though unemployed, to not fall into this category.

The labor force is made up of everyone willing and able to work.

First, let's subtract the students who are not looking for work from the population so get the labor force. 50,000 - 1,000 = 49,000 (labor force)

Next, to get the number of people unemployed let us subtract the labor force of 49,000 by those already employed of 45,000. 49,000 - 45,000 = 4,000

Finally, we are able to calculate the unemployment rate of Boone. 
Unemployment rate = number of people unemployed / labor force
Unemployment rate = 4,000/49,000= .081 multiply by 100 to get the percentage. 8.1%
Unemployment rate of Boone is 8.1%
3 0
3 years ago
Two online travel companies, E-Travel and Pricecheck, provide the following selected financial data: ($ in thousands) E-Travel P
svlad2 [7]

Answer:

E-travel-1.15

Pricecheck-0.38

Explanation:

Debt to equity ratio compares the finance provided by outsiders viz-a-viz that which is provided by the original owners of the company,the shareholders, in order to determine whether or not the company is at risk of slow growth if outsiders withdraw their funds.

Debt to equity=total liabilities/equity

E-Travel:

total liabilities is $2,854,475

total equity $2,482,681

debt-equity ratio=$2,854,475/$2,482,681=1.15

Debtholders provided more capital funding than the stockholders

Pricecheck:

total liabilities is $472,610

total equity is $1,257,614

debt-to-equity ratio=$472,610/$1,257,614 =0.38

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