Question
he risk-free rate of return is 2 percent, and the expected return on the market is 8.2 percent. Stock A has a beta coefficient of
he risk-free rate of return is 2 percent, and the expected return on the market is 8.2 percent. Stock A has a beta coefficient of 1.2, an earnings and dividend growth rate of 3 percent, and a current dividend of $2.30 a share. Do not round intermediate calculations. Round your answers to the nearest cent.
$
The stock -Select-shouldshould notItem 2 be purchased.
$
$
$
The increase in the return on the market -Select-increasesdecreasesItem 6 the required return and -Select-increasesdecreasesItem 7 the value of the stock.
The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to -Select-increasedecreaseItem 8 .
The decrease in the beta coefficient causes the firm to become -Select-lessmoreItem 9 risky as measured by beta, which -Select-increasesdecreasesItem 10 the value of the stock.
- What should be the market price of the stock?
- If the current market price of the stock is $53.00, what should you do?
- If the expected return on the market rises to 13.4 percent and the other variables remain constant, what will be the value of the stock?
- If the risk-free return rises to 5 percent and the return on the market rises to 13.8 percent, what will be the value of the stock?
- If the beta coefficient falls to 1.1 and the other variables remain constant, what will be the value of the stock?
- Explain why the stocks value changes in c through e.
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