The market expects that Sorena BhD pays a constant dividend of $2 per share every year,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The market expects that Sorena BhD pays a constant dividend of $2 per share every year, in the next 10 years. You believe that you can sell the Sorena BhD stocks at the end of year 4 (t-4) at $45. (5 marks) (i) If required rate of return is 10%, calculate the price of the stock (ii) If a broker is offering this stock at $40, indicate whether you buy it. (2 marks] b) Soom Inc will pay $1 dividend for the next three years and then the dividend will grow at 10% per year indefinitely. If required rate of return is 12%, calculate the price of the stock. (7 marks) c) COVID-19 vaccine is driving the stock-market rally and analysts predict that the stock markets will respond positively to the COVID-19 vaccine development with reducing the stock market volatility. Based on the Gordon Growth Model there are three factors (i.e. next dividend, expected dividend growth rate, and investors' expected discount rate) that determine stock price. Using the Gordon Growth Model, explain how COVID-19 vaccine development positively would impact stock markets. The market expects that Sorena BhD pays a constant dividend of $2 per share every year, in the next 10 years. You believe that you can sell the Sorena BhD stocks at the end of year 4 (t-4) at $45. (5 marks) (i) If required rate of return is 10%, calculate the price of the stock (ii) If a broker is offering this stock at $40, indicate whether you buy it. (2 marks] b) Soom Inc will pay $1 dividend for the next three years and then the dividend will grow at 10% per year indefinitely. If required rate of return is 12%, calculate the price of the stock. (7 marks) c) COVID-19 vaccine is driving the stock-market rally and analysts predict that the stock markets will respond positively to the COVID-19 vaccine development with reducing the stock market volatility. Based on the Gordon Growth Model there are three factors (i.e. next dividend, expected dividend growth rate, and investors' expected discount rate) that determine stock price. Using the Gordon Growth Model, explain how COVID-19 vaccine development positively would impact stock markets.
Expert Answer:
Answer rating: 100% (QA)
i To calculate the price of the stock using the constant dividend growth model Gordon Growth Model we can use the formula textStock Price fractextDivi... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
26. With its current leverage, Impi Corporation will have net income next year of 4.5 million. If Impis corporate tax rate is 35% and pay 8% interest on its debt, how much additional debt can Impi...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
A random walk in an undirected connected graph moves from a vertex to one of its neighbors, where each possibility has equal probability of being chosen. (This process is the random surfer analog for...
-
Rolling Hills Golf Inc. was organized on July 1, 2012. Quarterly financial statements are prepared. The trial balance and adjusted trial balance on September 30 are shown here. Instructions(a)...
-
The Tastee Bakery Company supplies a bakery product to many supermarkets in a metropolitan area. The company wishes to study the effect of the height of the shelf display employed by the supermarkets...
-
Two surveys asked Catholics in the Boston area whether contraceptives should be made available to unmarried women. The first survey involved in-person interviews, and 44% of the respondents answered...
-
Visit a local movie theater and check out both its concession area and its showing areas. The manager of a theater must confront questions such as: How much return do we earn on concessions? What...
-
What are the 3 basic principles in community health nursing?"
-
Fulcrum Industries manufactures dining chairs and tables. The following information is available: Dining Chairs Tables Total Cost 600 470 2,400 Machine setups Inspections Labor hours Problem 2. 200...
-
The external loads acting on the shaft in a gear system are given as Ma = 412.5 kN mm, Tm = 366,0 kN mm, Mm = Ta = 0. For the shaft the material 1020 CD steel is selected wchic has Sut = 470 MPa....
-
Give references using an APA Reference. Give a discussion on the following. Often, vulnerabilities and defects occur because software developers have been pushed to move software designed for...
-
Conveyancers must be conversant with the following areas/ branches of the law. Discuss why the following branches of the law are important to them: - Land Law - Planning Law - Tax Law - Contract Law...
-
Back to your Canada widgets corporation facility, your director is delivering you some bad new. Apparently, both widget quality levels were below standards last quarter. Your director is looking to...
-
A Quiz #10 - 23S_ACC2201_472 Fir x WP Question 5 of 5 - Quiz #10 * Course Hero education.wiley.com/was/ui/v2/assessment-player/index.html?launchld=3ed9510b-8665-4729-8591-342b97c1db26#/question/4 M...
-
Gateway Communications is considering a project with an initial fixed assets cost of $1.53 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At...
-
From the grouped data determine absolute frequency, cumulative absolute frequency, relative frequency, mean, median, average, quartile 1, decile 2, percentile 36. Xi. [18; 25) [25; 35) [35; 45) [45;...
-
Suppose that fraction used = / 1.0 + 0.1Mt. for some parameter 1. Write the discrete-time dynamical system and solve for the equilibrium. Sketch a graph of the equilibrium as a function of ....
-
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018). a. Compute Costcos net profit margin, total asset turnover, and equity...
-
This case draws on material from Chapters 1820. See MyLab Finance for the data in Tables 1, 2, 3, and 4 and the spreadsheet referenced in the case questions. Idexo Corporation is a privately held...
-
As a new junior analyst for a large brokerage firm, you are excited to demonstrate the skills you learned in college and prove that you are worth your attractive salary. Your first assignment is to...
-
An institution that many people know little about and some governments find worrisome is offshore financial centers. They operate with little oversight, few regulations, and often little taxation....
-
The microfinance concept has been a blessing for many people in developing countries. Its success there causes some to wonder if it can spur growth in areas of developed nations that need...
-
You are the senior accountant for a business that regularly imports spare parts for a range of your products from overseas suppliers. You have been instructed by the CEO to look at ways you can save...
Study smarter with the SolutionInn App