Why is expected return considered “forward-looking”? What are the challenges for practitioners to utilize expected return?
Answer to relevant QuestionsHow might the magnitude of the market risk premium impact people’s desire to buy stocks? If stock prices are not strong-form efficient, then what might be the price reaction to a firm announcing a stock buyback? Explain. You own $10,000 of Denny’s Corp stock that has a beta of 2.9. You also own $15,000 of Qwest Communications (beta = 1.5) and $5,000 of Southwest Airlines (beta = 0.7). Assume that the market return will be 11.5 percent and ...Universal Forest’s current stock price is $57.50 and it is likely to pay a $0.26 dividend next year. Since analysts estimate Universal Forest will have a 9.5 percent growth rate, what is its required return? Explain why the divisional cost of capital approach may cause problems if new projects are assigned to the wrong division.
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