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# \$30.00Stocks

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• Due on May. 19, 2012
• Asked on May 16, 2012 at 3:06:30PM

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Q:

Problem 1

Suppose a dividend of \$1.25 was paid. The stock has a required rate of return of 11.2% and investors expect the dividend to grow at a constant rate of 10%. Complete parts (a) through (e) below.

a)     Compute D, D1, D2, D3 and D7.

b)     Compute the present value of the dividends for t = 3 years.

c)     Compute the current market price.

d)     Assume that the constant growth rate is actually 0%. What is the current market price?

e)     Describe the behavior of the present value of each future dividend (i.e. the behavior as t increases).

Problem 2

Suppose a dividend that pays at \$1.07 has a growth rate of 20% for the first 3 years. After the 3 years, there is a long-run growth rate of 8%. The stock has a required rate of return of 12.4%. Find the current market price of a share of common stock.

Problem 3

Assume the beta coefficient for a company’s stock is β= 0.2, the risk-free rate of return, rRF, is 8% and the required rate of return on the market, rM, is 14%. Assume the dividend expected during the coming year is D1 = \$2.50 and the growth rate is a constant 7%. Complete parts (a) through (c) below.

a)     Compute the price at which the company’s stock should sell.

b)     Find the new price of the stock assuming the risk-free rate of return is 5% and the required rate of return on the market is 11%.

c)     What would be needed for a stock to be in equilibrium?

Available Tutorials to this Question

\$30.00
Stocks_ Complete answers in word doc. and excel calculations attached
• This tutorial was purchased 3 times and rated No Rating by students like you.
• Posted on May 16, 2012 at 5:03:21PM
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A:
Preview: ... swers in word ...

The full tutorial is about 10 words long plus attachments.

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\$30.00
• This tutorial was purchased 1 time and rated No Rating by students like you.
• Posted on May 16, 2012 at 5:30:59PM
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A:
Preview: ... 5 was paid. The stock has a required rate of return of 11.2% and investors expect the dividend to grow ...

The full tutorial is about 86 words long plus attachments.

Attachments:

\$30.00
Completed with explanations as discussed
• This tutorial was purchased 4 times and rated A+ by students like you.
• Posted on May. 20, 2012 at 11:51:41AM
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Rating (213):A+