Your broker has advised you to buy shares of Hungry Boy Fast Foods, which has paid a

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Your broker has advised you to buy shares of Hungry Boy Fast Foods, which has paid a dividend of \(\$ 1.00\) per year for 10 years and will (according to the broker) continue to do so for many years. The broker believes that the stock, which now has a price of \(\$ 12\), will be worth \(\$ 25\) per share in five years. You have good reason to think that the discount rate for this firm's stock is \(22 \%\) per year, because that rate compensates the buyer for all pertinent risks. Is the stock's present price a good approximation of its true financial value?

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Foundations Of Financial Markets And Institutions

ISBN: 9780136135319

4th Edition

Authors: Frank J Fabozzi, Franco G Modigliani, Frank J Jones

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