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Problem $11-06$

The risk$-$free rate of return is $2$ percent, and the expected return on the market is $6\mathrm{.}7$ percent. Stock A has a beta coefficient of $1\mathrm{.}7,$ an earnings and dividend growth rate of $8$ percent, and a current dividend of $$3\mathrm{.}40$ a share. Do not round intermediate calculations. Round your answers to the nearest cent.

What should be the market price of the stock?

$

$184\mathrm{.}52$

If the current market price of the stock is $$208\mathrm{.}00,$ what should you do$?$

The stock

should not

be purchased.

If the expected return on the market rises to $8\mathrm{.}9$ percent and the other variables remain constant, what will be the value of the stock?

$

$64\mathrm{.}08$

If the risk$-$free return rises to $3\mathrm{.}5$ percent and the return on the market rises to $9\mathrm{.}4$ percent, what will be the value of the stock?

$

If the beta coefficient falls to $1\mathrm{.}5$ and the other variables remain constant, what will be the value of the stock?

$

Explain why the stock$$s value changes in c through e$.$

The increase in the return on the market

$-$Select$-$

the required return and

$-$Select$-$

the value of the stock.

The increase in the risk$-$free rate and the simultaneous increase in the return on the market cause the value of the stock to

$-$Select$-$

$.$

The decrease in the beta coefficient causes the firm to become

$-$Select$-$

risky as measured by beta, which

$-$Select$-$

the value of the stock