HW4_-_Part_2_-_Stocks_-_Solution_Manual

HW4_-_Part_2_-_Stocks_-_Solution_Manual - FINANCIAL...

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SILABO – GERENCIA EMPRESARIAL Universidad Iberoamericana UNIBE Due Date : March 17, 2011 Deliver hard copy at the beginning of class and send the electronic file through email. Note: Use as exercises the study problems of chapter 6 that are in the photocopies of the book Foundations of Finance that is available at the photocopy office located in the basement of the FRA1 building at UNIBE. In all the problems set the student must provide a clear mathematical argument for the response. Otherwise a partial credit will be given for correct answers. Lecture 11: The Valuation and Characteristics of Stocks (10 Exercises) Exercises: 8-2, 8-5, 8-6, 8-7, 8-10, 8-15, 8-16, 8-18, 8-22, 8-23 Book: Mathematics of Money (31 Exercises) Exercises 6.1 Exercises: 1, 3, 4, 8, 12, 17, 19, 28, 29, 30, 31, 32, 33 Page 1 of 7 FINANCIAL MATHEMATICS HOMEWORK 4: PART 2

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Exercises 6.3 Exercises: 1, 6, 10, 14, 16, 22, 30, 31, 32 Exercises 6.4 Exercises: 2, 10, 12, 14, 16, 18, 26, 28 8-2. Growth rate = return on equity x retention rate Thus: Retention rate = equity on return rate growth = 12 . 07 . = .58 or 58% 8-5 . Value(V ps ) = return of rate required par value x rate dividend = = = \$116.67 8-6. Expected Rate of Return ps k = = = or .0463, or 4.63% 8-7. a. Expected return = = = .085 = 8.5% b. Given your 8 percent required rate of return, the stock is worth \$42.50 to you Value = = = \$42.50 Page 2 of 7
Since the expected rate of return (8.5%) is greater than your required rate of

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HW4_-_Part_2_-_Stocks_-_Solution_Manual - FINANCIAL...

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