# HW # 4 - Problem 6 What is the expected dividend to be paid...

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FIN 3301 Name________________________ Homework # 4 Due Wednesday November 11 Problem # 1 Calculate the expected return, variance, and standard deviations for investments in either stock A or stock B, or an equally weighted portfolio of both. Problem # 2 Where will the following projects plot in relation to the security market line if the risk- free rate is 6% and the market risk premium is 9%? Which projects should be undertaken? Problem # 3 Stock A has a current price of \$25.00, a beta of 1.25, and a dividend yield of 6%. If the Treasury bill yield is 5% and the market portfolio is expected to return 14%, what should Stock A sell for at the end of an investor's two year investment horizon? Problem # 4 What is the current price of a share of stock for a firm with \$5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4? Problem # 5 How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for \$50 one year from now?

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Unformatted text preview: Problem # 6 What is the expected dividend to be paid in three years if yesterday's dividend was \$6.00, dividends are expected to grow at a constant 6% annual rate, and the firm has a 10% expected return? Problem # 7 Show the breakdown of stock price between a firm's assets that are already in place and its present value of growth opportunities, assuming: next year's expected earnings equal \$5.00, 13% required rate of return, 17% return on equity, 45% plowback ratio. Problem # 8 Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate of 20% for the next 4 years, after which there will be no growth (g = 0) in earnings and dividends. The company’s last dividend, D , was \$1.50. MHI’s beta is 1.5, the market risk premium is 6%, and the risk-free rate is 4%. What is the current price of the common stock?...
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## This note was uploaded on 11/09/2009 for the course SBA fin3301 taught by Professor S.koubida during the Spring '09 term at Al Akhawayn University.

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HW # 4 - Problem 6 What is the expected dividend to be paid...

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