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1. Consider a firm whose stock price is $50. It pays an annual dividend of $3 per share; It's last year's earnings per share were
1. Consider a firm whose stock price is $50. It pays an annual dividend of $3 per share; It's last year's earnings per share were $11. a. Calculate the dividend yield. b. Calculate the price to earnings (P/E) ratio. c. If another firm from the same industry has P/E ratio of 15, which stock is more attractive to buy? Why? 2. Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. PO QOP1 Q1P2| Q2 A 90 100 95 100 95 100 JB 50 200 45 200 45 2 00 100 200 110 200 0 55 55 400 400 C a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t Otot 1). b. What must happen to the divisor for the price-weighted index in year 2 (after the split of stock C)? c. What will be the divisor from periods 3 onwards if no splits are expected? d. Calculate the rate of return for the second period (t = 1 tot = 2). e. Calculate the first-period rates of return on a market value-weighted index 1. Calculate the first-period rates of return on an equally-value-weighted index
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