Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.65 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company’s stock is 8 percent, 11 percent, and 14 percent, respectively. What is the stock price for each company? What do you conclude about the relationship between the required return and the stock price?
Answer to relevant QuestionsIn the previous problem, assume that Schenkel uses cumulative voting, and there are four seats in the current election. How much will it cost you to buy a seat now?Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 6 percent per year indefinitely. The required return on ...In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a ...You find a certain stock that had returns of 9 percent, −16 percent, 21 percent, and 17 percent for four of the last five years. If the average return of the stock over this period was 11.3 percent, what was the stock’s ...Based on the following information, calculate the expectedreturn:
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