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BCOR 2200 Chapter 7 Extra pricing cqs

BCOR 2200 Chapter 7 Extra pricing cqs - P = D 1(R g =...

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Chapter 7 Extra Stock Price Clicker Questions

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Clicker Question: A company just paid a dividend of \$1.50 and it will pay its next dividend in exactly one year The dividends will always be \$1.50 in real terms (so they will never increase) The REAL required return on this stock is 8% Calculate the price of the stock A. \$18.00 B. \$18.75 C. \$21.00 D. \$40.00 E. \$42.00 2
Clicker Answer: D 0 = D 1 = \$1.50 P 0 = D 1 /r = 1.5/0.08 = \$18.75 The answer is B 3

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Clicker Question: A company just paid a dividend of \$2.00 and it will pay its next dividend in exactly one year The dividends will increase by 5% per year (forever) The required return on this stock is 10% Calculate the price. A. \$1.90 B. \$2.00 C.\$21.00 D.\$40.00 E. \$42.00 4
Clicker Answer: D 0 = \$2.00 g = 5% R = 10% D 1 = D 0 (1 + g) = \$2.00(1.05) = \$2.10

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Unformatted text preview: P = D 1 /(R - g) = 2.10/(0.10 - 0.5) = \$42.00 The answer is E 5 Clicker Question: • A stock’s just paid a dividend of \$2.00. The dividend will grow at 15% for 2 years and then grow at 5% forever. The required discount rate is 10%. Calculate the price of the stock. • Hint: D 1 = \$2.30, D 2 = \$2.65 and D 3 = \$2.78 A. \$7.73 B.\$25.73 C.\$50.27 D.\$52.73 E.\$85.73 6 Clicker Answer: • g 1 = 15%, g 2 = 5%, R = 10% • D 1 = \$2.30, D 2 = \$2.65 and D 3 = \$2.78 • The first dividend to which g 2 is applied is D 2 • Calculate P 1 using D 2 : P 1 = D 2 /(R – g 2 ) = \$2.65/(0.10 – 0.05) = \$53 • Calculate P as the PV of D 1 and P 1 : P = \$2.30/(1.1) + \$53/(1.1) = \$50.27 The answer is C. 7...
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BCOR 2200 Chapter 7 Extra pricing cqs - P = D 1(R g =...

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