The required rate of return on the market

Assignment Help Finance Basics

Reference no: EM13755411

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:
(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: EM13755411

Questions Cloud

Use the irr and npv capital budgeting methods : Layla Corporation has the opportunity to do any or all of the following projects for which the net cash flows per year are shown below. The company has a cost of capital of 14%. Which projects, if any, should the company do, and why? Please use the I..

Describe how big data and distributed data : Define ‘Big Data'. Describe how ‘Big Data' and distributed data fit in the modern business environment. The Internet is considered a ‘game changing' technology. Discuss at least three reasons why this is true

Explain key attributes of larry frymires leadership style : Identify and explain four key attributes of Larry Frymire's leadership style. Identify and explain four major influences from the tug of war between Frymire's role as leader and the newly elected governor.

Several convicted cases of cyberstalking : There are several convicted cases of cyberstalking and Internet fraud/abuse. Misha Glenny, a United Kingdom-based journalist, recently wrote a book on the subject matter appropriately titled Dark Markets

The required rate of return on the market : 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..

Calculate the modified value of the first character of input : To calculate the modified value of the first character of input we add its mapped value to the mapped value from the first character of the encryption string.

Show the effect of dollar appreciation and depreciation : Is China still using central bank foreign exchange policy to maintain the value of the yuan? What is the current policy of the United States on this issue - If the U.S. economy is operating near full employment and the exchange rate increases, exp..

Create a portfolio that is short one call : Assume that you create a portfolio that is short one call and long one put. The call has a delta of .2735, gamma of .0279, theta of -8.9173, vega of 9.9144, and rho of 3.5985. the put has a delta of -.7265, gamma of .0279, theta of -4.779, vega of 9...

How did second great awakening affect the reform movements : How did the Second Great Awakening affect the reform movements of the mid-1800s?

User Account

All Pages