Question: I am having difficulty with this question. How do I calculate the discount rate on this stock? Top hedge fund manager Sally Buffit believes that

I am having difficulty with this question. How do I calculate the discount rate on this stock?

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%.

Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2015 (figures in percent per year) are as follows.

PortfolioAverage Annual

Rate of Return (%)Average Premium (Extra return

versus Treasury bills) (%)Treasury bills3.8Treasury bonds5.31.5Common stocks11.47.6

What is the discount rate on the stock?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Check my work Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $58. The stock will pay a dividend at year-end of $3.00. Assume...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $46. The stock will pay a dividend at year-end of $3.00. Assume...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $45. The stock will pay a dividend at year-end of $4.00. Assume...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $55. The stock will pay a dividend at year-end of $2.50. Assume...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of $2. What price...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of $2. Assume...

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $51. The stock will pay a dividend at year-end of $3.00. Assume...

Suppose a firm has 18.20 million shares of common stock outstanding at a price of $29.42 per share. The firm also has 430000.00 bonds outstanding with a current price of $966.00. The outstanding...

Franklin Construction entered into a fixed price contract to build a freeway-connecting ramp for $25 million. Construction costs incurred in the first year were $38 million and estimated remaining...

Evaluate the potential of all pay global budgets to improve both financial outcomes and population of outcomes support your evaluation with at least two lessons or concepts

1. Make the architectural scheme and describe the architectural scheme (components) of the Amazon Go retail solution! 2. Identify the TPS, FAIS, and ERP positions (Amazon go) in general! 3. Explain...

Mention and explain 4 DBMS models!

Create a decision tree with the software of your choice (Word, PowerPoint, Visio, etc) and make an OFFICE document or PDF Assume that when you check the schedule on day 60 of the project, it becomes...

On December 4, 2016, Dan Johnson, the delivery truck driver for Farmers Products Inc., ran a stop sign and collided with another vehicle. On January 8, 2017, the driver of the other vehicle filed...

1. You will write a short java application that uses a loop control structure. use the scanner class to accept a number between 1 and 10 from the user, while the number entered is not between 1 and...

Create a 200 word summary on the Juvenile Justice System than and today. Describe The Juvenile system and provide a generalizable definition. Highlight the issues in the Juvenile system and why this...

An analysis of cash records and account balances of Wells, Inc., for 2003 is as follows: Account Account Cash Balances Balances Received or Jan. 1, 2003 Dec. 31, 2003 Paid in 2003 Wages...

The income statement and the balance sheet for the Hamblin Company for the year ended December 31, 2003, are provided below. 1. Using the DuPont framework, compute Hamblins return on equity (ROE). 2....

Refer to the financial statements for Sports Haven Company for the year-ended December 31, 2003 (shown in the review problem for this chapter, pp. 176-177). 1. Using the DuPont framework, compute: a....