What is the stock fair market value

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Reference no: EM132210890

Question - Consider the data for Roadrunner Enterprises for the following two questions. The company's next dividend is expected to be $2.00, and dividends are expected to grow at 5% per year forever. The stock has a beta of 1.50. The risk free rate is 3%, and stocks, as measured by the B&P500 Index, are expected to have total return of 10% per year indefinitely.

1. What is the stock's Fair Market Value?

A) Less than $20.

B) $20 to $25.

C) $26 to $30.

D) $30 to $35.

E) More than $35.

2. Which of the following is a weakness in using standard deviations and arithmetic averages in analyzing and predicting returns?

A) Standard deviations are relative risk measures and the benchmark may not be appropriate.

B) Standard deviations don't consider the entire risk of securities.

C) An underlying assumption is that the data is normally distributed.

Reference no: EM132210890

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