1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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

You might be interested in
The teenage market is a market that is categorized in what way?
grin007 [14]
The closest answer that i can think of is categorized by consumer. By consumer, we are saying that you have to categorize them based on what they like meaning based on what they like at their age. For example, if you are going to market a pizza store to them, one of the best ways to do that is to position your pizza store as a place for friends to hang out because teenagers, at that age, love to hang out with friends and to be cool. So you have to categorize a teenage market by their interests when they are at that certain adolescent age
5 0
3 years ago
If Morton Company expects to sell VCR’s at $100 a unit with variable costs of $60 per unit and DVD’s at $200 per unit with varia
Thepotemich [5.8K]

Answer:

$72

Explanation:

To calculate the weighted contribution margin we can use the following formula:

[(sales price A - variable cost A) x proportional sales A] + [(sales price B - variable cost B) x proportional sales B]

= [($200 - $120) x 80%] + [($100 - $60) x 20%] = $64 + $8 = $72

7 0
3 years ago
A stock has an expected return of 11 percent, its beta is 1.20, and the risk-free rate is 4.4 percent. What must the expected re
Drupady [299]

Answer:

Expected market return = 9.8%

Explanation:

The expected return on the market can be worked out using the Capital Asset Pricing Model.

<em>The capital asset pricing model is a risk-based model. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta. </em>

Under CAPM, Ke= Rf + β(Rm-Rf)

Rf-risk-free rate (treasury bill rate)- 4.4%

β= Beta - 1.20

Rm= Return on market.- ?

Applying this model, we have

11%= 4.4%+ (R-4.4%)×1.20

0.11-0.044= 1.20×(R-0.04)

0.07 = 1.20R-0.048

Collect like terms

0.07+0.048 = 1.2R

Divide both sides by 1.20

R= (0.07+0.048)/1.20

R=9.83%

Expected market return = 9.8%

3 0
3 years ago
Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weight) that you
Leokris [45]

Answer:

(2) 4%

Explanation:

The portfolio is considered to be less risky if its volatility is low. The higher standard deviation the more risky is the project. For Duke Energy and Microsoft the investment portfolio required is risk free investment. To calculate the risk free rate we calculate using the formula;

Var Rp = x1 2Var R1 + x2 2Var R2 +2 x1 x2 Corr (R1, R2) SD1 SD2

Var Rp = 0.14 + 0.44 + 2 (1) * (-1) * 6% * 24%

Solving for this we get the risk free investment at 4%.

3 0
3 years ago
Coronado Industries had 293000 shares of common stock issued and outstanding at December 31, 2020. No common stock was issued du
Gnesinka [82]

Answer:

$3.72

Explanation:

earnings per common share = earning attributable to holder of common stock ÷ weighted average number of common stocks outstanding

therefore,

earnings per common share = $3.72

5 0
3 years ago
Other questions:
  • Kevin noticed that Derek, an automotive technician at his repair shop, was getting bored of repeatedly performing the lone task
    8·1 answer
  • After the end of the 2022 fiscal year but before financial statements were issued, Palladin Company learned that an arbitrator h
    7·1 answer
  • When quantity demanded exceeds quantity supplied at the current market price, the market has a shortage, and market price will l
    12·1 answer
  • In the demonstration, 360∘ of rotation (one full rotation) represents a sidereal day. You can actually measure the length of the
    10·1 answer
  • There are three key approaches to entering international markets. each company must decide how to enter each chosen marketlong d
    7·1 answer
  • You decide to incorporate your bracelet business and get your mother and brother involved in the corporation. Your executive com
    11·1 answer
  • Bonnie is writing a cover letter for a job application.She has written the introduction describing her strengths.However,she is
    12·1 answer
  • How is owner’s equity affected when is paid for expenses?
    8·1 answer
  • A(n) ______ team is a group of experienced people from different areas of business who join together to form a managerial team w
    14·1 answer
  • at global airways, penny piper, manager of flight scheduling, needs to make a decision about flight scheduling. presently global
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!