Question: QUESTION 2. [10 marks, 2 marks each] 2.1 A stocks average return is 12.5 percent. The average risk-free rate is 8.59 percent. The stocks beta

QUESTION 2. [10 marks, 2 marks each]

2.1 A stocks average return is 12.5 percent. The average risk-free rate is 8.59 percent. The stocks beta is 1.5 and its standard deviation of returns is 12 percent. What is the Sharpe Index?

2.2 A stocks average return is 14 percent. The average risk-free rate is 8 percent. The standard deviation of the stocks return is 4 percent, and the stocks beta is 2.6. Calculate the Treynor Index for the stock?

2.3 LeBlanc Inc. currently has earnings of R25 per share, and investors expect that the earnings per share will grow by 4 percent per year. Furthermore, the mean PE ratio of all other firms in the same industry as LeBlanc Inc. is 18. LeBlanc is expected to pay a dividend of R6 per share over the next four years, and an investor in LeBlanc requires a return of 15 percent. What is the forecasted stock price of LeBlanc in four years, using the adjusted dividend discount model?

2.4 Fabrizio, Inc. is expected to generate earnings of R5.50 per share this year. If the mean ratio of shareprice to expected earnings of competitors in the same industry is 18. Calculate the stock price per share.

2.5 Sorvino Co. is expected to offer a dividend of R3.2 per share per year forever. The required rate of return on Sorvino stock is 13 percent. Calculate the price of a share of Sorvino stock, using to the dividend discount model.

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