e Dwarf Corporation recently paid a dividend of $3.00 per share. M at a constant

Question

e Dwarf Corporation recently paid a dividend of $3.00 per share. M at a constant rate of 10% anagement expects dividends per year. If the required rate of return on the company's stock is 14%, much would the stock be worth at the end of three years from today? how a. $ 82.50 b. $109.81 c. $ 99.82 d. S 21.42 Answer: 20. An investor will choose between Asset Q with an expected return of 6.5% and a standard deviation of 5.5%, Asset U with an expected return of 8.8% and a standard deviation of 5.5%, and Asset B with an expected return of 8.8% and a standard deviation of 6.5%, which one should she prefer? a. Cannot be determined b. Asset B e. Asset U d. Asset Q Answer:

Explanation / Answer

19) Dividend at end of year 3 = $      3.00 x (1+0.10)^3 = $       3.99 Price at end of year 3 = D3*(1+g)/(Ke-g) Where, = 3.99*(1+0.10)/(0.14-0.10) D3 = Dividen at year end 3 = $       3.99 = $ 109.73 g = Growth rate =           0.10 Ke = Required return =           0.14 b. $ 109.81 Note:Difference is due to rounding off difference 20) Expected Return Standard deviation Asset Q 6.50% 5.50% Asset U 8.80% 5.50% Asset B 8.80% 6.50% Answe : c.Asset U Any investor will go for highest return with lowest standard deviation.Standard dviation is measure of deviation in expected return. Asset U and Asset B has highest expected return but Asset U has lowest standard deviation.So, Asset U is the final selection.

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