Question 1

Miller's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share.
a.What is the expected rate of return on the stock?
b.If an investor's required rate of return is 9%,what is the value of the stock to that investor?
c.Considering the investor's required rate of return,does this stock seem to be a desirable investment?

Accepted Answer

The answer of Miller's preferred stock is selling at $54...

Question 2

South Stage,Inc.preferred stock pays an annual dividend of $2.75 per share.If the stock is currently selling for $27.50 per share,what is the expected rate of return on this stock?

Accepted Answer

The expected rate of return is calculated by dividing the annual dividend by the current selling price of the stock. So, $2.75 / $27.50 = 0.10 or 10%.

Question 3

You purchased one share of Sophia Enterprises common stock for $30 today.If the stock pays a dividend of $6.50 in one year,and sells for $32.50 at that time,what will the dividend yield,growth rate,and total rate of return be for the year?

Accepted Answer

The answer of You purchased one share of Sophia Enterprises...

Question 4

LED Corp.'s common stock paid $2.50 in dividends last year (D0).Dividends are expected to grow at a 12-percent annual rate forever.If LED's current market price is $40.00,and your required rate of return is 23 percent,should you purchase the stock?

Accepted Answer

The stock's value can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is P = D1 / (r - g), where P is the price, D1 is the dividend next year, r is the required rate of return, and g is the growth rate. Here, D1 = D0 * (1 + g) = $2.50 * (1 + 0.12) = $2.80, r = 0.23, and g = 0.12. Plugging these into the formula gives P = $2.80 / (0.23 - 0.12) = $2.80 / 0.11 = $25.45. Since the current market price of $40.00 is higher than the calculated value of $25.45, the stock is overpriced.

Question 5

Jackson Corp.common stock paid $2.50 in dividends last year (D0).Dividends are expected to grow at a 12-percent annual rate forever.If Jackson's current market price is $40.00,what is the stock's expected rate of return (nearest .01 percent)?

Accepted Answer

The answer of Jackson Corp.common stock paid $2.50 in dividends...

Question 6

Tannerly Worldwide's common stock is currently selling for $48 a share.If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00,what is the rate of return implicit in the current stock price?

Accepted Answer

The answer of Tannerly Worldwide's common stock is currently selling...

Question 7

U.S Technologies preferred stock sells for $80 and pays $9 each year in dividends.What is the expected rate of return?

Accepted Answer

The answer of U.S Technologies preferred stock sells for $80...

Question 8

The common stock of Cranberry Inc.is selling for $26.75 on the open market.Next year's dividend is expected to be $3.68,and the growth rate of this company is estimated to be 5.5%.If Richard Dean,an average investor,is considering purchasing this stock at the market price,what is his expected rate of return?

Accepted Answer

The answer of The common stock of Cranberry Inc.is selling...

Question 9

Crandle's common stock is currently selling for $79.00.It just paid a dividend of $4.60 and dividends are expected to grow at a rate of 5% indefinitely.What is the required rate of return on Crandle's stock?

Accepted Answer

The required rate of return on Crandle's stock is 11.11%. This is calculated using the Gordon Growth Model, which is:Required rate of return = Dividend yield + Growth rateDividend yield = Dividend / PriceDividend yield = $4.60 / $79.00Dividend yield = 5.82%Growth rate = 5%Required rate of return = 5.82% + 5%Required rate of return = 11.11%

Question 10

Bevel Building Products,Inc.,whose common stock is currently selling for $12 per share,is expected to pay a $1.80 dividend,and sell for $14.40 one year from now.What are the dividend yield,growth rate,and total rate of return,respectively?

Accepted Answer

The answer of Bevel Building Products,Inc.,whose common stock is currently...

Quiz 8: The Valuation and Characteristics of Stock