TM Corporation\'s common stock is trading at $ 30 per share. The dividend paid i

Question

TM Corporation's common stock is trading at $ 30 per share. The dividend paid in the year just ended in $2 per share, and expected to grow at an rate of 8% If you can buy the stock for $ 25 per share, what is your expected rate of return? 16.0% 15.2% 14.7% 16.6% 13.2% A constant growth stock has a market price of $ 30. The upcoming dividend (DI) is expected to be $ 3.00 and the stock grows at an 8% constant rate, The CAPM required return for the stock is 16%. Assuming that markets are efficient, what would you expect the price to do? Nothing, it is in equilibrium $ 30 can't be sustained, it must go up $30 can't be sustained, it must go down All of the above Suppose that the rick - free rate (rf) is 9% the expected return on the market (m) is 12% and the beta of stock (A) is 2.5. What is the required rate of return for stock A? 15.5% 23.5 16.5 20.5 A firm has an issue of preferred stock outstanding that has a stated annual dividend of $ 4. The required return of the preferred stock has been estimated to be 16 percent. The value of the preferred stock is $16 $ 50 $ 64 $ 25 John Smith has invested in three stocks with the information given below: What are the expected return and beta for this portfolio? 8.6%; 1.25 10.7% 1.13 10.8%; 1.18 12.4%; 1.04

Explanation / Answer

1.

2.16 / (ke-.08) = 30

2.16 = 30ke - 2.4

4.56 = 30ke

ke = 15.2%

2.

The price should go up. Option B

3.

4.Value of preferred stock = Dividend / rate of dividend = 4/.16 = $25

5. Return in total = 5400 / 50000 = 10.8%

Beta = 1.18

Current Price 30 Current Dividend 2 Dividend Growth 8% Theoretical Price D1/(ke-g) D1           2.16

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