The following stock quotations were recently reported in the Wall Street Journal
ID: 2664513 • Letter: T
Question
The following stock quotations were recently reported in the Wall Street Journal:
10.3
AT&T
T
3.6
21
39.43
0.26
0.1
Boeing
BA
1.6
31
88.91
-0.85
-8.7
JohnsJohns
JNJ
2.5
16
60.26
-0.08
a. What are the dividend yields on the common stock of AT&T, Boeing, and Johnson & Johnson?
b. What possible explanation can you give for the differences in the common stock dividend yields observed in Part a?
c. What is the current price-earnings ratio for Boeing and Johnson & Johnson?
d. What possible explanation can you give for the differences in the price-earnings ratios observed in Part c?
e. What was the previous day’s closing price for AT&T’s common stock?
10.3
AT&T
T
3.6
21
39.43
0.26
0.1
Boeing
BA
1.6
31
88.91
-0.85
-8.7
JohnsJohns
JNJ
2.5
16
60.26
-0.08
Explanation / Answer
a. The dividend yield for AT&T is 3.6%; for Boeing it is 1.6%; and for Johnson &
Johnson it is 2.5%.
b. These firms differ with respect to expected earnings and dividend growth, with
AT&T likely having the lowest expected growth and Boeing the highest expected
growth.
c. P/E for Boeing = 31 times
P/E for Johnson and Johnson = 16 times
d. Boeing’s higher expected growth rate more than offsets the relatively lower expected risk of Johnson & Johnson, and since the P/E ratio is a measure to indicate the investors expectations about future returns, it is only natural that Boeing would have a higher P/E ratio.
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