Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The risk-free rate of return is 2 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of

image text in transcribed

The risk-free rate of return is 2 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 7 percent, and a current dividend of $2.80 a share. Do not round intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $36.00, what should you do? The stock -Select- be purchased. c. If the expected return on the market rises to 11.3 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 4.5 percent and the return on the market rises to 11.8 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.5 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- the required return and -Select- 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- v. The decrease in the beta coefficient causes the firm to become -Select- risky as measured by beta, which -Select- the value of the stock

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

Step: 3

blur-text-image

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

Intermediate Financial Management

Authors: Eugene BrighamPhillip Daves

1st Edition

0324594712, 9780324594713

More Books

Students also viewed these Finance questions

Question

Identify ways that country culture influences global business.

Answered: 1 week ago

Question

Define human resource ethics.

Answered: 1 week ago

Question

Describe the human resource management profession.

Answered: 1 week ago