Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The risk-free rate of return is 9.0%, the expected rate of return on the market portfolio is 19%, and the stock of Xyrong Corporation has

image text in transcribed

The risk-free rate of return is 9.0%, the expected rate of return on the market portfolio is 19%, and the stock of Xyrong Corporation has a beta coefficient of 2.5. Xyrong pays out 60% of its earnings in dividends, and the latest earnings announced were $30 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 25% per year on all reinvested earnings forever. Required: a. What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic value 82.50 b-1. If the market price of a share is currently $81, and you expect the market price to be equal to the intrinsic value one year from now, calculate the price of the share after one year from now. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price

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

The Preppers Financial Guide

Authors: Jim Cobb

1st Edition

1612434037, 978-1612434032

More Books

Students also viewed these Finance questions