Solution - chapter 9

# Solution - chapter 9 - \$1.69 \$1.80 \$16.58 Stock price...

This preview shows pages 1–2. Sign up to view the full content.

1, Expected dividend yield Answer: a EASY D 1 \$2.00 g 6% P 0 \$40.00 Dividend yield 5.00% 4, Expected total return Answer: b EASY D 1 \$2.00 g 6% P 0 \$40.00 Total return 11.00% 10, Constant growth rate Answer: b EASY Expected dividend (D 1 ) \$1.00 Stock price \$40.00 Required return 11% Dividend yield 3% Growth rate 8.50% 13, Constant growth valuation; CAPM Answer: c MEDIUM D 1 \$1.00 b 1.20 r RF 3.0% RP M 5.0% g 5.0% r s 9.0% P 0 \$25.00 18, Constant growth stock dividend Answer: a MEDIUM Stock price \$40.00 Required return 10% Growth rate 7% Expected dividend \$1.20 Last dividend \$1.12 22, Nonconstant growth stock price Answer: c HARD Chapter 9: Stocks and Their Valuation Page 1 CHAPTER 9 ANSWERS AND SOLUTIONS

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Last dividend (D 0 ) \$1.50 Short-run growth rate 20% Long-run growth rate 0% Beta 1.5 Market risk premium 6.00% Risk-free rate 4% Required return 13.00% Year 0 1 2 3 4 5 Dividend \$1.50 \$1.80 \$2.16 \$2.59 \$3.11 \$3.11 Terminal value \$23.93 Total CFs \$1.80 \$2.16 \$2.59 \$27.04 Pv of the CFs \$1.59
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: \$1.69 \$1.80 \$16.58 Stock price \$21.66 57, Stock price Answer: d 0 1 2 Years | | | P = ? 0 D 2 = 9.25 2 P = 150.00 CF 2 = 159.25 r s = 16% Numerical solution: P = 2 ) 16 . 1 ( 25 . 159 \$ = \$118.35. Financial calculator solution: Inputs: N = 2; I/YR = 16; PMT = 0; FV = 159.25. Output: PV = -\$118.35. P = \$118.35. 59, Future stock price--constant growth Answer: b P = \$4/(0.12 - 0.08) = \$100. If the growth rate is 8%, the price in 8 years is: \$100 (1.08) 8 = \$185.09. 74, Equilibrium stock price Answer: b Before: r s = 5% + (8% - 5%)1.3 = 8.9%. P = 0.04-0.089 4) \$0.80(1. = \$16.98. After: r s = 4% + (10% - 4%)1.5 = 13%. P = 0.06-0.130 ) \$0.80(1.06 = \$12.11. Hence, we have \$12.11 - \$16.98 = -\$4.87. Chapter 9: Stocks and Their Valuation Page 2...
View Full Document

## Solution - chapter 9 - \$1.69 \$1.80 \$16.58 Stock price...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online