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Olin [163]
3 years ago
10

The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of Xyong Corporati

on has a beta of 1.2. Xyong pays out 40% of its earnings in dividends, and the latest earnings announced were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyong will earn an ROE of 20% per year on all reinvested earnings forever.
(a) What is the intrinsic value of a share of Xyong stock now?
(b) What is the intrinsic value of a share of Xyong stock one year from now?
(c) If the market price of a share is currently $100 and you expect the market price to be equal to the intrinsic value one year from now, what is your expected one-year holding period return on Xyong stock?
Business
1 answer:
barxatty [35]3 years ago
8 0
The risk free talks about how much the value is to another person. To find it out graph it ok a piece of paper and see how many it goes up to stock.
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F. Both firms have a dominant strategy to pick the Low Price option

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= (Low price, low price)

= (26,20)

The first payoff would be considered as a yellow firm and the other one is blue one

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