6. %u2022 a. National Telephone and Telegraph (NTT) Company common stock current

ID: 2701730 • Letter: 6

Question

6.%u2022a. National Telephone and Telegraph (NTT) Company common stock currently

sells for $60 per share. NTT is expected to pay a $4 dividend during the coming

year, and the price of the stock is expected to increase to $65 a year from now.

Determine the expected (ex ante) percentage holding period return on NTT

common stock.

b. Suppose that 1 year later, NTT%u2019s common stock is selling for $75 per share.

During the 1-year period, NTT paid a $4 common stock dividend. Determine

the realized (ex post) percentage holding period return on NTT common

stock.

c. Repeat Part b given that NTT%u2019s common stock is selling for $58 1 year later.

d. Repeat Part b given that NTT%u2019s common stock is selling for $50 1 year later.

60 = 4/(r-g)

r-g = 1/15

now,

65= 4(1+g)/(r-g)

65=60g

g = 65/60

g = 13/12

g = 8.33%

a)ex ante HPR = (5+4)/60 = 9/60 = 15%

b) 19/60 = 31.66%

c)4-2)/60 = 6.66%

d) -6/10 = -10%

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