BCOR 2200 Chapter 7 Extra pricing cqs

BCOR 2200 Chapter 7 Extra pricing cqs - Chapter7...

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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
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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
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Clicker Answer: D 0  = $2.00     g = 5%     R = 10% D 1  = D 0 (1 + g) = $2.00(1.05) = $2.10 P 0  = D 1 /(R - g) = 2.10/(0.10 - 0.5) = $42.00
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Unformatted text preview: 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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  • Spring '08
  • TOMNELSON
  • Dividends, Dividend, Dividend tax, The Real, Clicker question, Joint stock company

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