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

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

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