1) Based on its perceived riskiness, the annual required rate of return is 17.3%
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Question
1) Based on its perceived riskiness, the annual required rate of return is 17.3% for shares of Cyberdyne Inc. The company just paid their annual dividend of $5.54 a share. Analysts predict that the dividend will grow at an annual rate of 5.3%. What is the estimated price of the stock in 6 years, using the Dividend Discount Model? Answer to the nearest penny.
2)Estimate the annual required rate of return for BTO stock, using the Dividend Discount Model. BTO just paid an annual dividend of $15.99 per share, and the concensus analyst estimate is that the dividend will grow at 4.4% each year. The current market value of BTO stock is $97.11 per share. Answer as a % to 2 decimal places (e.g., 12.34% as 12.34).
3)Jane purchased 100 shares of Acme Consolidated 1 year ago at $120.22 per share. During the year, Acme paid a dividend of $1.92 per share. Currently, the stock is selling for $105.79 per share. What is Jane's realized rate of return for the year from the stock? Answer as a percentage, 2 decimal places (e.g., 12.34% as 12.34).
4)A stock just paid an annual dividend of $6.67 per share. The expected growth rate of the dividend is 9.07%. The required rate of return for the stock is 12.44% per annum. Based on the Dividend Discount Model, what is the expected dividend yield for the stock for the coming year? Answer as a percentage, 2 decimal places (e.g., 12.34% as 12.34).
5)CCR stock is currently trading for $126.2 per share. The firm is expected to pay a dividend of $11.27 per share in one year and to increase the dividend at 4.7% each year thereafter. Based on the Dividend Discount Model, what the the annual required rate of return for CCR stock? Answer as a % to 2 decimal places (e.g., 12.34% as 12.34).
Explanation / Answer
1. Estimated price of the stock in 6 years= 7th Year dividend/(Reqd.return-GrowthRate) D(7)=D(0)*(1+Growth Rate)^7 ie. 5.54*(1.053)^7/(0.173-0.053) = 66.27155 or $ 66.27 2. Using the Formula to find the price of the stock P= Next Year's Dividend/(Reqd.return-Growth Rate) 97.11=(15.99*1.044)/(Reqd.return-0.044) So,solving for Required return, we get r=0.215904 or 21.59% 3. Realised return is the dividends received by holding the stocks as a percentage of the current market price = 1.92/105.79*100 = 1.81% 4. Expected dividend yield for the stock for the coming year =Coming Year(D1) $ dividend/Coming Year Market price(P1) of the stock Price (P1)of the Stock= Dividend( D2)/ (Reqd.Return-Growth Rate) ie. 6.67*(1.0907)^2/(0.1244-0.0907) =235.4543 Dividend Yield for the coming Year =Coming Year(D1) $ dividend/Coming Year Market price(P1) of the stock (6.67*1.0907)/235.4543*100 = 3.09% 5. Using the Formula to find the price of the stock as per DDM Price= Next Year's Dividend/(Reqd.return-Growth Rate) 126.2=11.27/(Reqd.return-0.047) Required Return = 0.1363 ie. 13.63%
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