Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations
Q: You are thinking about buying a stock and holding it for 3 years. You expect that the stock will pay…
A: The stock price which is the maximum price to be paid for share consists of dividends and terminal…
Q: Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase that…
A: Price of stock today or P0 = D1/(r-g) where D1 = Dividend to be paid next year r = required rate of…
Q: how much should you be willing to pay for this stock today?
A: Given in the question: Dividend at year 2 = P7.50 Expected Rate of Return = 15% Expected price to…
Q: How am I supposed to solve for the max interest? You have $39,000 you would like to invest in…
A: To get maximum annual interest we need to invest more of the amount in Stock Boll rather than in…
Q: How much can you withdraw each year in your retirement? (Do not round intermediate calculations and…
A: A stream of equal cash flows paid or received periodically is termed as annuity. Annuity is either…
Q: Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to increase that…
A: There are two types of markets in the stock market: Primary market and secondary market. All these…
Q: Hudson Corporation will pay a dividend of $2.94 per share next year. The company pledges to increase…
A: A dividend is a sum of amount which is paid by a company on a periodic basis to its shareholders. A…
Q: is this stock a good buy
A: The constant growth model is a method for valuing the share price of a stock. It calculates the…
Q: Dylan expects an EBIT of $10000 every year forever. Dylan can borrow at 7 percent. Suppose Dylan…
A: Given Information : EBIT = $10,000 Cost of Equity = 12% Tax rate = 35% Amount of Debt = $33,000
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: We, have in the Question, D1= next year dividend = $1.50 G= growth rate = 4% market price = $28.50…
Q: You are interested in buying the preferred stock of a bank that pays a dividend of $1.75 every…
A: To arrange the funds, firm issues various securities in the market. Preferred stock is one of them.…
Q: You purchase a stock for $1000 and expect to sell it for $900 after five years but also expect to…
A: The rate of return that an investor is earning from a particular investment in a particular time…
Q: How many years will take $10,000 to grow to $20,000 if bank offered rate is 10%? How many years will…
A: 1. Prevent value= $10,000 Future value= $20,000 Interest rate=10% (assuming compounding is annual)…
Q: Assume that you plan to buy a share of National Company’s stock today and to hold it for 2 years.…
A: Present Value :— It means Value of Cash Flow today. It consider Time value of money for its…
Q: You want to invest in a stock that pays $3.50 annual cash dividends for the next ten years. At the…
A: A model that helps to evaluate the value of the stock with the assumption that the dividend will…
Q: Mark Johnson invests a fixed percentage of his salary at the end of each year. This year he invested…
A: The future value of a growing annuity is the future worth of a series of cash flow increasing at a…
Q: If you plan to buy the stock, hold it for 3 years, and then sell it for $34.73, what is the most you…
A: Compute the price to be paid.
Q: Melissa Popp is thinking about buying some shares of Education, Inc., at $50 per share. She expects…
A: Given the following information: Share price of Education Inc: $50 per share Expected price of the…
Q: Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to increase that…
A: Under dividend growth model, theoretical current market price could be determined by using the…
Q: You plan to buy common stock and hold it for one year. You expect to receive both ₱150 and ₱260 from…
A: As per the arbitrage free pricing theory the price that should be paid = intrinsic value of the…
Q: You are offered a chance to purchase shares in a new company which sells franchises for MamaC Pizza.…
A: Intrinsic value of share = Annual dividend/required return
Q: This morning you purchased a stock that just paid an annual dividend of $2.00 per share. You require…
A: Price of sharen = Dn+1 / ( Required return - Growth rate )
Q: What is the “total return” on your investment? (remember, total return is more than ju
A: Purchase price=$10 selling price $11 dividend paid $1
Q: What will you pay today for a stock that is expected to make a P45 dividend in one year if the…
A: In this dividend discount method is to be used to calculate price of stock.
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Dividends expected = 1.50 Growth Rate = 4% Required Return = 9% Price of share in market = 28.50…
Q: Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of…
A: annual rate of return formula: annual rate of return =selling price+dividendbuying price-1
Q: You expect a share of EconNews.Com to sell for $69 a year from now. If you are willing to pay $70.09…
A: Share price is the current price at which one share of the company is sold in the market. The…
Q: ppose you bought a stock of company AT&T_today: After 3 years, you can sell it at $30 At the end…
A: In this we have to calculate present value of dividend and price after three years.
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: The value of any financial asset = present value of its future cashflows. And dividend discount…
Q: The company Kay's Potato Chips just paid a dividend of $2.00 per share and is expected to continue…
A: Stock is the security that represents the ownership of the stockholder in the company. The stock…
Q: You consider buying a share of stock at a price of $950. The stock is expected to pay a dividend of…
A: expected return formula: expected return=selling price+dividendbuying price-1
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Intrinsic value is the fair value of the share or the value at which the share should be trading
Q: Ghaith has bought shares of RIO, Inc. stock for $25.00 per share. He expects a $1.00 dividend at the…
A: Given: Share purchased =$25Cash inflow in the form of dividend in year 1=$1Cash inflow in the form…
Q: You are interested in buying the preferred stock of a bank that pays a dividend of $1.55 every…
A: Dividend each quarter (D)= 1.55 Required rate per quarter (k)=8%/4= 2%
Q: expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for…
A: when calculating the dividend expected of a stuff it is important to consider the growth prospect of…
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Intrinsic value of a stock is given by IV = D1/(K - g) Where, D1 = expected dividend = 1.5 K =…
Q: Your broker recommends that you purchase Good Mills at $30. The stock pays a $2.20 annual dividend,…
A: In order to evaluate whether to buy the stock or not one should calculate the current stock price.
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Growth Rate = 4% per year Dividend expected = 1.50 per share Price of share = 28.50 Required Return…
Q: You were offered to buy shares of stock of a newly listed company. You decided to take 300 shares at…
A: Using a Future value formula we can determine the time it takes to double the initial amount when…
Q: Assume you plan to invest a one-lump sum of $25,000 in the stock market for the next 10 years at a…
A: The stock market is the market where the stocks and securities of various companies are traded which…
Q: Your first task in your new job at an investment bank is to price a new stock issue. You expect the…
A: Information given in the question is as follows: Dividend after 1 year = $2 Growth rate = 3% = 0.03…
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Next dividend (D1) = $1.50 Growth rate (g) = 4% Required rate of return (r) = 9% Stock price =…
Q: You are interested in buying the preferred stock of a bank that pays a dividend of RM1.80 every…
A: Preferred shareholders have a special right over equity shareholders. Preferred shareholder received…
Q: If you invest $2,000 in a stock and its value is doubled in five years, what is the return on your…
A: Compound Interest is calculated by multiplying the initial principal amount by one plus the annual…
Q: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He…
A: Intrinsic value of company is the internal estimate of the company’s worth. It is arrived by…
Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- You consider buying a share of stock at a price of $950. The stock is expected to pay a dividend of $10 next year, and your advisory service tells you that you can expect to sell the stock in 1 year only for $945. What is the expected rate of return?Suppose you are thinking of purchasing the Luna Co.’s common stock today. If you expect Luna to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?1) Assume you start an investment account by purchasing international corporate stocks with $1,000 now, $1,500 at the end of year 3, and $500 at the end of each year in years 4 through 10. How much money would you have in the account immediately after the last deposit in year 10 if the interest rate is 6% per year? Solve using (a) Tabulated factors, and (b) Spreadsheet.
- b) Your broker has advised you to buy shares of Fast repair computer repair shop, which has paid a dividend of $2 per share annually and will (according to the broker) continue to do so for many years. The stock is currently priced at $18. You have good reason to think that the appropriate rate of return for this stock is 13% per year. Is the stock's present price a good approximation for the true financial value? What would you like to pay for the share and should you buy or sell now?Which of the following would offer the best return on investment? Assume that you buy $5,000 in stock in all three cases, and ignore interest and transaction costs in all your calculations. Also assume that decimal number of stocks can be bought so all the amount discussed is invested into the stocks in all three cases. Buy a stock at $90 without margin, and sell it a year later at $105. Buy a stock at $70 with 50% margin (50% loan), and sell it a year later at $85. Buy a stock at $65 with 25% margin (75% loan), and sell it a year later at $80. Alternative offers the best return on the investment.Suppose you are thinking of purchasing the stock of Moore Oil, Inc. and you expect it to pay a $2 dividend in one year and you believe that you can sell the stock for $14 at that time. If you require a return of 20% on investments of this risk, what is the maximum you would be willing to pay?
- Suppose you are thinking of purchasing the Moore Co.’s common stock today. If you expect Moore to pay $2.5, $2.625, $2.73, and $2.81 dividends at the end of year one, two, three, and four respectively and you believe that you can sell the stock for $40.97 at the end of year four. If you required return on this investment is 9%, how much will you be willing to pay for the stock today?An investor is thinking about buying some shares of Health Diagnostics, Inc., at $50 a share. She expects the price of the stock to rise to $90 a share over the next 3 years. During that time, she also expects to receive annual dividends of $4 per share. Assuming that the investor's expectations (about the future price of the stock and the dividends that it pays) hold up, what rate of return can the investor expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.) Round the answer to two decimal places.You are considering buying some share in The Wayne Coporation as part of your retirement account. First, you want to calculate the expected return for Wayne Corp's stock to see if it meets your very high standards. You have estimateed the 3 for Wayne Corp to be 2.38, the risk free rate in the market to be 2%, and the expected return on the market to be 20. What is the expected return for Wayne Corp? (Answer in Percentage terms and Round to 2 decimals)
- For questions below, make sure to write down the formulas you use and explain your calculations. 1. Suppose you take out a fixed payment loan of £1000 for 5 years. You will repay it in annual installments. Calculate the fixed payment if you know the interest on the loan is 5%. 2. Suppose you require a 10% return on your investments while purchasing a stock that is currently trading at $50. The company is believed to pay out dividends of $5 per share in the next two years. What is the lowest value of expected stock price 2 years from now that would make you willing to purchase the stock asuming you want to sell it at that time? Calculate the yield-to-maturity on a coupon bond that has a 5% annual coupon rate and face value F = $100 due in 2 years from now if the bond is currently traded at price $105. 3. Suppose the current 1-year discount rate on US government bonds is 3% and the 2- year rate is at 6%. What is the implied expected 1-year rate next year, assuming the expectations 4.…Eastern Bank went public in 2020 and you are thinking about buying it. The stock (EBC) stock is currently selling for $797.29. You are thinking about buying it and you hope to sell it in 6 years. If your required return on investments of this risk is 16.1%, what must you sell it for? Answer:Explain how a financial market operates? Which of the investment constraints is expected to have the most impact on your decision process? You plan to buy common stock and hold it for one year. You expect to receive both ₱150 and ₱260 from the sale of the stock at the end of the year. How much will you pay for the stock, if you want to a. Have a return of 8% b. A return of 20% c. A return of 15%