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Lelechka [254]
3 years ago
6

Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A share of stock sells fo

r $50 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year
Business
1 answer:
Tju [1.3M]3 years ago
3 0

Answer: Price of stock at year end =$53

Explanation:

we first compute the Expected rate of return using the CAPM FORMULAE that

Expected return =risk-free rate + Beta ( Market return - risk free rate)

Expected return=6% + 1.2 ( 16%-6%)

Expected return= 0.06 + 1.2 (10%)

Expected return=0.06+ 0.12

Expected return=0.18

Using the formulae Po= D1 / R-g  to find the growth rate

Where Po= current price of stock at $50

D1= Dividend at $6 at end of year

R = Expected return = 0.18

50= 6/ 0.18-g

50(0.18-g) =6

9-50g=6

50g=9-6

g= 3/50

g=0.06 = 6%

Now that we have gotten the growth rate and expected return, we can now determine the price the investors are expected to sell the stock at the end of year.

Price of stock = D( 1-g) / R-g

= 6( 1+0.06)/ 0.18 -0.06

=6+0.36/0.12

=6.36/0.12=  $53

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Answer:

A failure of the financial sector.

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Scott Bennett is preparing his balance sheet and income and expense statement for the year ending June 30, 2016. He is having di
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Answer:

a. Expense

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e. Expense and Asset

f. Assets

Explanation:

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Collision insurance cover damage
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3 years ago
The most recent financial statements for Schenkel Co. are shown here: Income Statement Balance Sheet Sales $ 14,500 Current asse
Katena32 [7]

Answer:

0.1046 or 10.46%

Explanation:

The computation of the sustainable growth rate is shown below:

The Sustainable growth rate of the firm is

= Return on Equity × ( 1 - Dividend Payout Ratio )

where,

Dividend Payout Ratio = 30%

And,

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8 0
3 years ago
Becker Products is a manufacturer and distributor numerous food products. The company recently reported earnings per share of $5
atroni [7]

Answer:

The intrinsic value = $469.15

Explanation:

<em>The price earning (P/E) ratio can be used to determine the price of a stock. This is done as follows:</em>

Price = EPS × P/E ratio

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The intrinsic value = 19.75 × $5.50 = $469.15

3 0
3 years ago
Read 2 more answers
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