UGBA 103 _4.3 Answers

UGBA 103 _4.3 Answers - = [D 1 ]/(r s- g); need to solve...

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UGBA 103 Summer 2010 Haas School of Business John Gonzales Assignment #4 Answers 8-2. P 0 = [D 1 ]/(r s - g). P 0 = [1.50]/(.15 - .07) = $18.75. 8-3. r s = [D 1 /P 0 ] + g. r s = 1.10/20 + .10 = 15.50%. The capital gain yield (= expected price increase) = g = 10%, so the expected price in one year is $22.00. Alternatively, P 1 = [D 2 ]/(r s - g). P 1 = [1.10(1.10)]/(.155 - .10) = $22.00. 8-4. r PS = D/P PS . r PS = 5/50 = 10%. 8-5. r S = 7.5 + 1.2(4) = 12.30%. D 1 = 2(1 + .20) = $2.40. PV of D 1 = 2.40/(1 + .1230) = 2.137. D 2 = 2(1 + .20) 2 = $2.88. PV of D 2 = 2.88/(1 + .1230) 2 = 2.284. TV 2 = D 3 /( r S - g) = [2.88(1 + .07)]/(.123 - .07) = 58.14. PV of TV 2 = 58.14/(1 + .1230) 2 = 46.10. P 0 = 2.137 + 2.284 + 46.10 = $50.52. 8-6. P 0 = D 1 /(r s - g). 80 = 4/(.14 - g) g = 9%. 8-7. Using CAPM, r s = 5.6% + 0.9(6%) = 11%. P
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Unformatted text preview: = [D 1 ]/(r s- g); need to solve for g. 25 = 2.00/[.11 - g]; g = 3%. The capital gain yield is 3%, so in 3 years the E(P) = 25(1 + .03) 3 = $27.32. Alternatively, P 3 = [D 4 ]/(r s- g). P 1 = [2(1 + .03) 3 ]/(.11 - .03) = $27.32. 8-12. D 3 = $1.00. PV of D 3 = 1.00/(1 + .15) 3 = .6575. D 4 = 1(1 + .50) = $1.50. PV of D 4 = 1.50/(1 + .15) 4 = .8576. D 5 = 2(1 + .50) 2 = $2.25. PV of D 5 = 2.25/(1 + .15) 5 = 1.1186. TV 5 = D 6 /( r S- g) = [2.25(1 + .08)]/(.15 - .08) = 34.71. PV of TV 5 = 34.71/(1 + .15) 5 = 17.257. P = .6575 + .8576 + 1.1186 + 17.257 = $19.89. 8-13. (a) r PS = D/P PS , so D/r PS = 10/.08 = $125. (b) D/r PS = 10/.12 = $83.33....
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