The risk free rate of return is 3 percent, and the expected return on the market is 8 7 percent Stock A has a beta coefficient of 1 4, an earnings and dividend growth rate of 5 percent, and a current dividend of $2 60 a share a What should be the market price of the stock b If the current market pr...

a Required return r f r m r f beta 03 087 0314 1098 1098 V 2601 05 4565 1098 05 b ...

The risk-free rate of return is 3 percent, and the expected return on the market is 8.7

Question:

The risk-free rate of return is 3 percent, and the on the market is 8.7 percent. Stock A has a of 1.4, an earnings and growth rate of 5 percent, and a current of $2.60 a share.
a. What should be the market price of the stock?
b. If the current market price of the stock is $27, what should you do?
c. If the on the market rises to 10 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 10.2 percent, what will be the value of the stock?
e. If the falls to 1.1 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.
Beta Coefficient
Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...