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A share of stock with a beta of .81 now sells for $69. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 4%, and the market risk premium is 7%.
a. Suppose investors believe the stock will sell for $71 at year-end. Is the stock a good or bad buy? What will investors do?
b. At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
KL Airlines paid an annual dividend of $1.42 a share last month. The company is planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively. After that, the dividend will be constant at $2 per share per year. What is the ma..
From October 2007 to March 2009, the market declined about 57%. It then advanced in 1 year about 69%. Determine by calculations if investors were ahead after the advance or not?
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The C. Alice Stone Company's common stock has paid a $3 dividend for so long that investors are now convinced that stock will continue to pay that annual dividend forever. If the next dividend is due in one year and investors require 8% return on the..
An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 18 years, while Bond S matures in 1 year. What will the value of the Bond L be if the going interest rate is 4%? What will ..
What are two potential tests that can be conducted to verify the CAPM? What are the results of such tests? What is Roll's critique of CAPM tests? Briefly explain the difference between the CAPM and the Arbitrage Pricing Theory (APT).
Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of $10,000,000. A summary of key data about the proposed projects follows. Use the IRR approach to select the best group..
Returns Year X Y 1 10 % 15 % 2 24 25 3 10 14 4 – 17 – 22 5 10 16 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y.
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