Risk-free rate of return-required rate of return on market

Assignment Help Financial Management
Reference no: EM13987825

(a) The risk-free rate of return is 8 percent, the required rate of return on the market, E[Rm] is 12 percent, and Stock X has a beta coefficient of 1.4. If the dividend expected during the coming year, D1, is $2.50 and g = 5%, at what price should Stock X sell? (b) Now suppose the following events occur simultaneously: (1) The Federal Reserve Board increases the money supply, causing the riskless rate to drop to 7 percent. (2) Investors' risk aversion declines: this fact, combined with the decline in RF, causes RM to fall to 10 percent. (3) Firm X has a change in management. The new group institutes policies that increase the growth rate to 6 percent. Also, the new management stabilizes sales and profits, and thus causes the beta coefficient to decline from 1.4 to 1.1. After all these changes, what is Stock X's new equilibrium price? (Note: D1 goes to $2.52.)

Reference no: EM13987825

Supplement the retirement programs that are being funded

Patty Scheme lenberg, a 45-year-old woman, wishes to accumulate $300,000 over the next 15 years to supplement the retirement programs that are being funded by the federal gove

How much must you invest today

Suppose you are committed to owning a $207,000 Ferrari. If you believe your mutual fund can achieve a 13 percent annual rate of return and you want to buy the car in 10 years

Effects of the insolvency on company-shareholders

There has been a major global crisis, and your company’s board of directors has announced that the company is going bankrupt. No one could have seen this one coming. As your c

Annual return mean and standard deviation

Tyler Trucks stock has an annual return mean and standard deviation of 8 percent and 27 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and

About the return on equity

Midwest Packaging's ROE last year was only 5%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 45%, which will result in annual

What tools can managers use to enhance the understandability

What tools can managers use to enhance the understandability and comparability of performance analysis? How does the flexible budget formula enhance understandability and comp

What is total dollar amount capitalized as cost of land

Jack Company purchased land at a price of $40,000. Closing costs for the transaction totaled $1,200. After the sale, Jack demolished and removed an old barn on the land at a c

Acme conglomerate corporation operated three divisions

Acme Conglomerate Corporation operated three divisions. One division involves significant research and development, and thus has a high-risk cost of capital of 15%. The second

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd