PROMISE I WILL LIKE NEED ASAP ( 6 marks ) Stock one is in a relative declining industry Suppose that the company of stock one will pay one terminal dividend at the end of year two , then go out of business, with a liquidation price of $10 per share The dividend is as yet unknown but based on a thorough analysis of all public information, investors agree on the following distribution Possible Dividend Probability $10 0 4 $5 0 4 $2 0 2 Suppose investors rationally use the CAPM to discount In addition, based on all public information, it is believed that Beta of the stock is 1 5, the expected market index return is 15 , and riskless rate is 5 0 Using this information, calculate what is the current share price of the company ( 6 marks )

The Answer is in the image, click to view ...

Question: PROMISE I WILL LIKE... NEED ASAP ( 6 marks ) Stock one is in a relative declining industry: Suppose that the company of stock one

PROMISE I WILL LIKE... NEED ASAP

(6 marks) Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at the end of year two, then go out of business, with a liquidation price of $10 per share. The dividend is as yet unknown but based on a thorough analysis of all public information, investors agree on the following distribution:

Possible Dividend	Probability
$10	0.4
$5	0.4
$2	0.2

Suppose investors rationally use the CAPM to discount

In addition, based on all public information, it is believed that Beta of the stock is 1.5, the expected market index return is 15%, and riskless rate is 5.0%. Using this information, calculate:

what is the current share price of the company? (6 marks)

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!

Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2017. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. For 2019, he reported die...

Stock Valuation: You are asked to valuate two stocks in different stage of their life cycle. a) ( 6 marks ) Stock one is in a relative declining industry: Suppose that the company of stock one will...

Help asap a) 6 marks) Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at the end of year two, then go out of business, with a...

) Stock Valuation: You are asked to valuate two stocks in different stage of their life cycle. a) Stock one is in a relative declining industry: Suppose that the company of stock one will pay one...

You are asked to valuate two stocks in different stage of their life cycle. a) Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at...

Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at the end of year two, then go out of business, with a liquidation price of $10...

Problem 1 (10 marks) Three years ago, you purchased a bond for $974.69. The bond had three years to maturity, a coupon rate of 8% paid annually, and a face value of $1,000. Each year you reinvested...

Please help with questions 1-11 The questions are as big as I can make them DIVIDEND POLICY "In a way, this is a pleasant problem to have," remarked Harry Gidwitz, the CEO of Anderson Autoparts, to...

5,6,7 ANDERSON AUTOPARTS DIVIDEND POLICY "In a way, this is a pleasant problem to have," remarked Harry Gidwitz, the CEO of Anderson Autoparts, to lan Lyle, director of marketing, as they entered the...

PROMISE I WILL: LIKE>>> NEED ASAP Short selling : You are bearish on XYZ stock and decide to sell short 100 shares at the current price of $50 per share. What is your initial investment value and How...

hey, can any of you do it, needit done in 2 days complete work is best BEGINNING OF TERM 1/4/16 END OF TERM 4/4/16 a. Stock market index information: S&P 500 (stock) index level: Nasdaq Composite...

Your PE firm has decided to invest $0.8 million in a startup, in return for a 30% share of the firm's equity. What's the implied (post-money) valuation of the firm, based on that offer? Answer in...

Develop components of a business plan to help inform your chosen sport organization as it looks to expand into a particular international market that you have selected. Once you establish the...

Maxson Products distributes a single product, a woven basket whose selling price is $8 and whose variable cost is $6 per unit. The companys monthly fixed expense is $5,500. Required: 1. Solve for the...

Job costing, consulting firm. Taylor & Associates, a consulting firm, has the following condensed budget for 2009: Taylor has a single direct-cost category (professional labor) and a single...

Prepare any necessary adjusting entries at December 31, 2015, for Maxum Companys year-end financial statements for each of the following separate transactions and events. 1. Employees earn vacation...

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. Required: 1....

Powered by Koffee (PBK) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every month, and you may assume that demand is perfectly steady throughout the year. PBK has signed a...

Chanel is a French luxury fashion house founded in 1 9 1 0 by Coco Chanel in Paris. Chanel specializes in women's ready - to - wear, luxury goods, and accessories. A website such as www . chanel.com...

Describe how organizational culture is being affected by having a greater percentage of women and minorities in the workforce

In your opinion, what HRD skills or competencies does an HRD manager need? How are these skills and competencies learned?

Describe the ways organizations attempt to integrate women and minorities into the organization and the relative success of these efforts