Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The risk-free rate of return is 4 percent, and the expected return on the market is 7.4 percent. Stock A has a beta coefficient of

The risk-free rate of return is 4 percent, and the expected return on the market is 7.4 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 5 percent, and a current dividend of $2.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent.

What should be the market price of the stock? $

If the current market price of the stock is $74.00, what should you do? The stock -Select- be purchased.

If the expected return on the market rises to 11.9 percent and the other variables remain constant, what will be the value of the stock? $

If the risk-free return rises to 6.5 percent and the return on the market rises to 12.5 percent, what will be the value of the stock? $

If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock? $

Explain why the stocks 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- .

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

Students also viewed these Finance questions

Question

Explain why many households do not participate in the stock market.

Answered: 1 week ago

Question

design a simple performance appraisal system

Answered: 1 week ago