Which of the following statements is CORRECT? Answer If you formed a portfolio t

Question

Which of the following statements is CORRECT? Answer If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them. Market risk can be eliminated by forming a large portfolio, and if some bonds are held in the portfolio, the portfolio can be made to be completely riskless. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.




A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98 Which of the following statements is CORRECT? Answer If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them. Market risk can be eliminated by forming a large portfolio, and if some bonds are held in the portfolio, the portfolio can be made to be completely riskless. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.




A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98 Which of the following statements is CORRECT? Answer If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them. Market risk can be eliminated by forming a large portfolio, and if some bonds are held in the portfolio, the portfolio can be made to be completely riskless. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.




A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98 Which of the following statements is CORRECT? Answer If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them. Market risk can be eliminated by forming a large portfolio, and if some bonds are held in the portfolio, the portfolio can be made to be completely riskless. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.




A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98 Which of the following statements is CORRECT? Answer If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them. Market risk can be eliminated by forming a large portfolio, and if some bonds are held in the portfolio, the portfolio can be made to be completely riskless. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.


A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98
A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98
Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98




A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the stock price? Answer $11.04 $12.40 $13.76 $15.00 $9.42


Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rmc078-1.jpg) is 12.0%. What is the best estimate of the current stock price? Answer $10.28 $11.95 $10.04 $11.11 $13.98

Explanation / Answer

1.)If you formed a portfolio that included a large number of low-beta stocks (stocks with betas less than 1.0 but greater than -1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have less risk than a portfolio that consisted of all stocks in the market.

2.)1.05/(0.139-0.54)=$12.4

3.)Year 1 dividend 0.5*1.015= 0.5075

Year 2 dvidend 0.5075 *1.015= 0.5151125
Stock price after year 2 0.5151125*1.08/(.12-.08)= 13.91.

So current stock price will be these amounts discounted back to the present at the .12 rate of return.

0.5075/1.12 +0.5151125/1.12^2 +13.91/1.12^2= 11.95

So B.)$11.95

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

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