Suppose the dividend of a stock today is 6%. The interest rate is 5% and that dividends will grow forever at the rate of 4%. What is the fundamental value (present value) of this stock? If the current market price of this is 500, should you buy or sell the stock?
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- Suppose you are thinking of purchasing the SunStar’s common stock today. If you expect SunStar to pay $0.80 dividend at the end of year one and $1.6 dividend at the end of year two and you believe that you can sell the stock for $15 at that time. If you required return on this investment is 10%, how much will you be willing to pay for the stock? a. $13.95 b. $14.44 c. 14.19 d. $15.51You buy a stock for $55 today, and sell the stock one year later for $54, during which time a $2 dividend is paid. What is your norminal return on this stock?Now assume that the stock is currently selling at $30.29. What is its expected rate of return?
- The next expected dividend for Stock P is 10 and the current price of the stock is P40. The risk free rate is 5%, the market risk premium is 8%, and the stock's beta is 1. What is the expected rate of return? What is the required rate of return? Why should an investor buy this stock?In follow an Ito process with >0, a stock is worth $80 today, if the price of an option that pays the holder $2 exactly the first time the stock price reaches $200, what is the price of an option? Show all calculation.A stock is expected to pay a dividend each year in the future of 40 and has a current price of 1000. Assuming Shiller’s present value model holds, what is the required rate of return on this stock?
- What is the stock price today if the dividend grow at 2% forever, the required rate of return r=10%, dividend today is $2.00. What is the stock price at year 3?Suppose that the current price of Roblox Corporation common stock is (RBLX) is $100. If the price of RBLX will be either $150 or $50 one year from now, what is the price of a call option with a strike price of $120 expiring one year from now? Assume that the current risk free rate is 1%. What is the risk neutral probability of the stock being $150 one year from now?Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
- Suppose you buy OMR2000 worth of stock on margin. The initial margin is 60% and the maintenance margin is 30%. a. How much have you borrowed? What is your equity? b. Suppose the value of the stock rises by 15% to OMR2300. What is the return on your investment? c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on your investment? d. Does buying a stock on margin increase or decrease your risk of investment? Use the results in parts b and c to answer the question.4. (15 pts) The current price of a stock is $50 and we assume it can be modeled by geometric Brownian motion with o = .15. If the interest rate is 5% and we want to sell an option to buy the stock for $55 in 2 years, what should be the initial price of the option for there not to be an arbitrage opportunity?Let us consider a covered call strategy. Suppose the call premium is 7, with the exercise price of 100. The underlying stock price at expiration is 100. The stock price of today is 122. What is the maximum loss this strategy might end up with at the date of expiration?
