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natima [27]
2 years ago
10

A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then e

xpected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock
Business
1 answer:
Marina86 [1]2 years ago
8 0

Answer:

P0 = $43.96935449 rounded off to $43.97

Explanation:

Using the dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula to calculate the price of the stock today is,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  +  ...  +  Dn / (1+r)^n  +  [(Dn * (1+g) / (r - g)) / (1+r)^n]

Where,

  • g is the constant growth rate
  • r is the required rate of return

P0 = 2 / (1+0.14)  +  1.5 / (1+0.14)^2  +  2.5 / (1+0.14)^3  +  3.5 / (1+0.14)^4  +  

[(3.5 * (1+0.08)  /  (0.14 - 0.08)) / (1+0.14)^4]

P0 = $43.96935449 rounded off to $43.97

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Semmy [17]

The same salary, with a percent growth due to cost-of-living adjustment compounded yearly, would be <u>$ 56755</u> in five years.

A salary is a money paid monthly by your employer, especially if you are in a profession such as education, law, or medicine. Lawyers were paid huge salaries. The government has decided to raise salaries for all civil servants. Synonyms: Wages, Income, Wages, Fees Synonyms for salary.

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2 years ago
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Explanation:

5 0
2 years ago
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One of the costs listed below is an opportunity cost. identify this cost.
Brut [27]
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6 0
3 years ago
A balance sheet has total assets of $1,664, fixed assets of $1,156, long-term debt of $614, and short-term debt of $191. What is
Lorico [155]

Answer:

Total assets $1664 - fixed assets of $1,156 = $508

Assets $508 - Short term debt $191 = $317

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The returns of ABC Company and the market are listed below. Compute the beta for ABC Company stock (Hint: Think rise over run).
PilotLPTM [1.2K]

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Compute the beta for ABC Company stock ?

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A stock with a beta greater than 1.0 fluctuates more than the market over time. A stock's beta is less than 1.0 if it moves less than the market. High-beta equities typically carry higher risks but also have a bigger potential reward. Although they carry less risk, low-beta equities often offer lesser returns.

Because of this, beta is frequently employed as a risk-reward ratio, which aids investors in deciding how much risk they are ready to accept in order to reap the potential rewards. It's crucial to take stock price volatility into account when determining risk. Beta is a useful proximate for risk if you view of risk as the likelihood that a stock would depreciate in value.

Beta = Covariance/Variance where: Covariance=A measure of an investment's return in relation to the market Variance is a measurement of how the market deviates from its mean.

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4 0
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