Part A A stocks next 2 dividends are as follows: $0.25 and $1.00. After that, th

Question

Part A

A stocks next 2 dividends are as follows: $0.25 and $1.00. After that, the stock is expected to grow at a rate of 4% indefinitely. The required return on this stock is 16%. Compute its fair market value.

Part B

A bond was issued 2 years ago. It's original maturity was 20 years. The coupon rate is 4% and the current YTM is 6%. Compute its intrinsic value.

Part C

A stock's next 2 dividends are expected to be $0.50 and $0.75, respectively. Afterwards, dividends are expected to grow at a constant rate of 4% per year indefinitely. The required return on this stock is 12% during the non-constant period and 10% afterwards. Compute its fair market value.

Explanation / Answer

a) k= d/s + g

.16 = .25/s + .04

s= .25/.12= $ 2.083

market value= $ 2.083

b) Incomplete question face value not given of the share

c) k- d/s +g

.12 = .50/s + .04

s= $ 6.25

market value= $ 6.25

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.