Question: A stock is expected to pay no dividends for the next three years. At the end of year 4 stock it is expected to begin

A stock is expected to pay no dividends for the next three years. At the end of year 4 stock it is expected to begin paying a constant dividend of $1 per share annually. Assume the stock’s betta is 1.2, the risk-free rate is 5%, an the market risk premium is 4%. Find the present value of the

a) 7.71

b) 7.02

c) 10.20

d) 9.14

e) 9.77

Step by Step Solution

★★★★★

3.41 Rating (164 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Computation of the Stock Price Cost of capital RFRMRFB Cost of capital 00500412 Cost of capi... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

68-B-C-F-C-B (989).xlsx

300 KBs Excel File

Students Have Also Explored These Related Corporate Finance Questions!

An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to 9%. If the required rate of return is 13%, what is its current price?

Functional currency is determine based on: Select one: a. Fund provided is used only if the currencies of revenue and expenses is almost divided equally b. None of the given choices c. Revenue and...

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 12.5%, and the expected constant growth rate is g = 8.5%. What is the current stock price?...

A stock is expected to pay no dividends for the next three years. The dividend foe year 4 is expected to be $5 (d4=$5) and it is anticipated that the dividend will grow at a constant rate of 8% a...

A share of stock is expected to pay no dividends for the next three years ( D 1 thru D 2 ) . At that point, it will pay an annual dividend of $ 1 . 0 0 ( D 3 ) , and that dividend is expected to grow...

a share of stock is expected to pay no dividends for the next three years ( D 1 through D 2 ) . At a point it will pay an annual dividend of $ 1 . 0 0 ( D 3 ) , and that dividend is expected to grow...

Calculate the present value of a stock if this stock is expected to pay $1.2 dividend in the next three years and then in year 4 and thereafter it pays $3 constant dividend forever. The interest rate...

Meg A. Hertz Electronics is expected to pay no dividends over the next three years, followed by a $0.50 dividend in four years. The dividend will then grow indefinitely by 3% annually. If the stock...

Q1 XYZ Inc., an all equity company, has expected earnings over the next year of E1 3.00 /share The company is expected to maintain an earnings retention rate of b 40% i.e., (1-b) of earnings are...

The monthly prices for Banco Ruida are as follows: Assume you have 1 million invested in the bank. Calculate the analytical VaR for Banco Ruida using a monthly holding period and 1 percent loss...

Joslyn Topp is discussing the advantages of the effective-interest method of bond amortization with her accounting staff. What do you think Joslyn is saying?

What is the source of IKEAs success today? Can you see any weaknesses in the company? What might it do to correct these?

4.97 The probability that an employee at a company is a female is .36. The probability that an employee is a female and married is .19. Find the conditional probability that a randomly selected...

Faith Dillon has prepared the following list of statements about accounts. 1. An account is an accounting record of either a specific asset or a specific liability. 2. An account shows only...

Selected transactions for L. Takemoto, an interior decorating firm, in its first month of business, are shown below and on page 86. Jan. 2 Invested $15,000 cash in the business in exchange for common...

Under the Liquidity Premium Theory, if today's one year spot rate is 4%, the forward one-year rate in one year is 6%, and the liquidity premium on a 2-year bond is 0.25%, today's 2-year spot rate...

Question 1 Brangelina Adoption Agencys general ledger shows a cash balance of $11,675. The balance of cash in the March-end bank statement is $7,347. A review of the bank statement reveals the...

You own the following portfolio of stocks. What is the portfolio weight of stock C? Stock Number of Shares Price per Share A 120 $28 B 710 $24 C 400 $48 D 220 $47 61.55 percent 20.70 percent 54.82...