Question
As an investor you have a required rate of return of 14 percent for investments in risky stocks. You have analyzed three risky firms and
As an investor you have a required rate of return of 14 percent for investments in risky stocks. You have analyzed three risky firms and must decide which (if any) to purchase. Your information is
| Firm | A | B | C | |
| Current dividends | $1.00 | $3.00 | $7.50 | |
| Expected annual growth rate in dividends | 8% | 3% | (-1%) | |
| Current market price | $23 | $47 | $60 |
a. What is your valuation of each stock using the dividend-growth model? Which (if any) should you buy? b. If you bought Stock A, what is your expected rate of return? c. If your required rate of return were 10 percent, what should be the price necessary to induce you to buy Stock A?
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Numerical Methods In Finance
Authors: René Carmona, Pierre Del Moral, Peng Hu, Nadia Oudjane
2012th Edition
3642257453, 978-3642257452
