If an investor expects dividends from shares of common stock for the next three

If an investor expects dividends from shares of

This preview shows page 4 - 7 out of 20 pages.

22.If an investor expects dividends from shares of common stock for the next three years to be D1, D2 and D3 and the selling price of the stock two and three years from now, P2 and P3 respectively, what is the intrinsic value of the stock today based on the dividend discount model?
Image of page 4
Equity Valuation: Concepts and Basic Tools Question Bank Copyright © IFT. All rights reserved. Page 5 23.A security’s required rate of return is 12% and its beta is 1.5. The market risk premium is 6%. What is the risk-free rate? 24.ABC Corporation will pay a dividend of $1.25 per share next year. If the required rate of return is 11.32% per year and dividends are expected to grow at a constant rate of 4% per year, the intrinsic value of ABC Corporation stock is closestto: 25.In a Gordon growth model, what happens to the intrinsic value if dividend increases? A.Increases. B.Decreases. C.Cannot be determined with certainty. 26.Peter is considering the purchase of a common stock. The current annual dividend is EUR 3.5. This dividend is expected to grow at a rate of 5% annually. If the required return is 7%, the intrinsic value of the stock is closestto: 27.Jim gathers the following information about a stock: Current price per share $54.00 Current annual dividend per share $2.50 Annual dividend growth rate for Years 1-4 12% Annual dividend growth rate for Years 5+ 6% Required rate of return 15% Based on DDM, the stock is most likely : 28.Corporation XYZ has just paid a dividend of $2.57 per share. Dividends are expected to grow by 12% for the next two years and 8% the year after that. From the fourth year, the dividends are expected to grow at 6.2% indefinitely. What is the intrinsic value of the stock of XYZ if the required rate of return is 7.2%?
Image of page 5
Equity Valuation: Concepts and Basic Tools Question Bank Page 6 C. 308.65 29.An analyst is attempting to value shares of Mitsubishi. Mitsubishi has just paid a dividend of $5 per share. Annual dividends are expected to grow at the rate of 6% per year over the next three years. At the end of three years, shares of Mitsubishi are expected to sell for $ 70. If the required rate of return is 10%, the intrinsic value of a share is closestto: A.$ 56.38. B.$ 66.53. C.$ 45.63.
Image of page 6
Image of page 7

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture