# Ch.11 answers - TUTORIAL CHAPTER 11 STOCK MARKET...

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TUTORIAL CHAPTER 11 STOCK MARKET Theoretical questions: 1. What distinguishes stocks from bonds? 2. Compare the problem of estimating stock cash flow to estimating bond cash flow. Which security would you predict to be more volatile? Problems: 1. Calculate the value of a preffered stock that pays a dividend of \$6 per share and your required rate of return is 12 percent. Solution: V = \$6/0.12 = \$ 50 2. The shares of Misheak, Inc. are expected to generated the following possible returns over the next 12 months: Return Probability -5% 0.10 5% 0.25 10% 0.30 15% 0.25 25% 0.10 If the stock is currently trading at \$25/share, what is the expected price in one year. Assume that the stock pays no dividends. Solution:The expected return over the next 12 months is calculated as: - 0.05 × 0.10  0.05 × 0.25  0.10 × 0.30  0.15 × 0.25  0.25 × 0.10 = 0.10 This suggests that the expected price is \$25 * (1.11) = \$27.50 3.Huskie Motor’s just paid an annual dividend of \$1.00 per share. Management has promised

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Ch.11 answers - TUTORIAL CHAPTER 11 STOCK MARKET...

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