Unformatted text preview: a. What are the dividend payout ratios for each firm? b. What are the expected dividend growth rates for each firm? c. What is the estimated stock price for each firm? a. Dividend payout Stock A = .7/1 = 70% Dividend payout Stock B = 1/2.50 = 40% b. g=plowback ration x return on equity growth rate for Stock A = 4.20% growth rate for Stock B = 7.20% c. 12.06896552 35.71428571 6. United Sports will pay a dividend of $2.50 next year and $3 the year after. In time 3 dividends will be 5% higher than the previous year and this growth continue in perpetuity. If the discount rate is 13%, calculate a fair price for the stock of United Sports, Inc. P= 35.39823 3. A 30 year maturity bond with a coupon rate of 7.75% and face value of $1,000 makes semi-annual coupon payments. What is the bond’s yield to maturity if the bond is selling for: P A = P B = P = 2.50/(1.13) + 3/(1.13 2 ) + [(3x1.05)/(.13-.05)]/(1.13 2 )...
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- Spring '08