FREE Trial
Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PLEASE SHOW ANSWER IN EXCEL You are considering the purchase of a new stock. The stock is forecasted to pay a dividend next year (D1)

PLEASE SHOW ANSWER IN EXCEL image text in transcribed
You are considering the purchase of a new stock. The stock is forecasted to pay a dividend next year (D1) of $3.67. In addition, you forecast that the firm will have a stable growth rate of 4.5% for the foreseeable future. The current risk-free rate of return is 2.8%. The expected return on the market is 7.6% and the standard deviation for the market is 12%. The stock has a correlation to the market of 0.59. Finally, the stock has a standard deviation of 53%. Given this information, what is the value of the stock? (Hint -- it is a constant growth situation)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Of Capital Applications And Examples

Cost Of Capital Applications And Examples

Authors: Shannon P. Pratt, Roger J. Grabowski, Richard A. Brealey

5th Edition

1118555805, 9781118555804

More Books

Students also viewed these Finance questions

Question

★★★★★
A vacation property valued at $25 000 was bought for 15 payments of $2200 due at the end of every 6 months. What nominal annual rate of interest compounded annually was charged?

Answered: 1 week ago

Question

★★★★★
BINOMIAL PROBLEMS: ADVANCED The manufacturer of a fertilizer guarantees that, with the aid of the fertilizer, 75% of planted seeds will germinate. Suppose the manufacturer is correct. If 9 seeds...

Answered: 1 week ago

Question

★★★★★
A management consultant said strategic leaders are concerned with vision and mission, while strategic managers are concerned with strategy. Do you agree? Discuss.

Answered: 1 week ago

Question

★★★★★
On December 21, 1988, Pan Am Flight 103 exploded 31,000 feet in the air over Lockerbie, Scotland, killing all 259 passengers and crew on board and 11 people on the ground. Among those killed was...

Answered: 1 week ago

Question

★★★★★
PLEASE SHOW ANSWER IN EXCEL You are considering the purchase of a new stock. The stock is forecasted to pay a dividend next year (D1) of $3.67. In addition, you forecast that the firm will have a...

Answered: 1 week ago

Question

★★★★★
[ What are the advantages of distance education and what are the - 1 challenges and how they can be faced? [ 15 Marks 2- There is a big transfer in many governmental and private services that were...

Answered: 1 week ago

Question

★★★★★
24, answer asap QUESTION 24 What is Benchmarking and why is it important? For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10p

Answered: 1 week ago

Question

★★★★★
The table below contains economic, financial, and business indicators from 2015: Forecasting the Pan-Pacific Pyramid: Australia, Japan, and the United States Unemployment Gross Domestic Product...

Answered: 1 week ago

Question

★★★★★
investigate at least six sources related to the current state of these major world issues 5 choices - such as - China USA trade war; Brexit aftermath; Russian invasion of Ukraine; Critical Supply...

Answered: 1 week ago

Question

★★★★★
Sterling Manufacturing is pursuing a bold plan to enhance growth of its watch manufacturing business. Management has a couple of financing issues that they need your help in assessing. Sterling's...

Answered: 1 week ago

Question

★★★★★
Problem 1: UC Company manufactures hooded jackets. During the year, it manufactured 250,000 jackets, using 2 hours of direct labor at a rate of Php8.50 per hour. The materials and labor standards for...

Answered: 1 week ago

Previous Question Next Question