The market expects that Sorena BhD pays a constant dividend of $2 per share every year,...
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The market expects that Sorena BhD pays a constant dividend of $2 per share every year, in the next 10 years. You believe that you can sell the Sorena BhD stocks at the end of year 4 (t-4) at $45. (5 marks) (i) If required rate of return is 10%, calculate the price of the stock (ii) If a broker is offering this stock at $40, indicate whether you buy it. (2 marks] b) Soom Inc will pay $1 dividend for the next three years and then the dividend will grow at 10% per year indefinitely. If required rate of return is 12%, calculate the price of the stock. (7 marks) c) COVID-19 vaccine is driving the stock-market rally and analysts predict that the stock markets will respond positively to the COVID-19 vaccine development with reducing the stock market volatility. Based on the Gordon Growth Model there are three factors (i.e. next dividend, expected dividend growth rate, and investors' expected discount rate) that determine stock price. Using the Gordon Growth Model, explain how COVID-19 vaccine development positively would impact stock markets. The market expects that Sorena BhD pays a constant dividend of $2 per share every year, in the next 10 years. You believe that you can sell the Sorena BhD stocks at the end of year 4 (t-4) at $45. (5 marks) (i) If required rate of return is 10%, calculate the price of the stock (ii) If a broker is offering this stock at $40, indicate whether you buy it. (2 marks] b) Soom Inc will pay $1 dividend for the next three years and then the dividend will grow at 10% per year indefinitely. If required rate of return is 12%, calculate the price of the stock. (7 marks) c) COVID-19 vaccine is driving the stock-market rally and analysts predict that the stock markets will respond positively to the COVID-19 vaccine development with reducing the stock market volatility. Based on the Gordon Growth Model there are three factors (i.e. next dividend, expected dividend growth rate, and investors' expected discount rate) that determine stock price. Using the Gordon Growth Model, explain how COVID-19 vaccine development positively would impact stock markets.
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Answer rating: 100% (QA)
i To calculate the price of the stock using the constant dividend growth model Gordon Growth Model we can use the formula textStock Price fractextDivi... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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