Assume initially that the required rate on investments is 20%, expected divided is $10 and a...
Assume initially that the required rate on investments is 20%, expected divided is $10 and a forecasted price a year from now is $50. Everything else the same, how would a decrease in the required return on investments to 10% affect the present stock price?
A. Will increase the present price
B. Not enough information to answer
C. Have no affect on it
D. Will decrease the present price
Homework Answers
Answer: A
At 20% rate:
Price of stock = Dividend / Rate = $10 / 0.20 = $50 (as given)
At 10% rate:
Price of stock = Dividend / Rate = $10 / 0.10 = $100 (as calculated)
Present price (at 10% rate) $100 is higher than $50.
Therefore, the present price increases.
Add Answer to:
Assume initially that the required rate on investments is 20%,
expected divided is $10 and a...
1. Suppose the company is expected to pay a divided of $2.5 and the required rate...
1. Suppose the company is expected to pay a divided of $2.5 and the required rate of return is 10% and the growth rate is 4%. What is the price of the stock after 5 years? after 10 years? after 12 years? 2. Suppose the company just paid a divided of $2.5 and the required rate of return is 10% and the growth rate is 4%. What is the price of the stock after 5 years? after 10 years? after...
REQUIRED RATE OF RETURN Suppose rRF = 3%, rM = 9%, and bi = 1.2. What...
REQUIRED RATE OF RETURN Suppose rRF = 3%, rM = 9%, and bi = 1.2. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. % 1. Now suppose rRF increases to 4%. The slope of the SML remains constant. How would this affect rM and ri? rM will increase by 1% and ri will remain the same. Both rM and ri will decrease by 1%. Both rM and ri will remain...
Required Rate of Return As an equity analyst you are concerned with what will happen to...
Required Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries stock as market conditions change. Suppose rRF = 5%, rM = 10%, and bUTI = 2.2. Under current conditions, what is rUTI, the required rate of return on UTI Stock? Round your answer to two decimal places. % Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and...
pdPCOA80101. uppose rRF = 796, rM-10%, and bi-1.9. a. What is ri, the required rate of...
pdPCOA80101. uppose rRF = 796, rM-10%, and bi-1.9. a. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. b. I. Now suppose rRF increases to 8%. The slope of the SML remains constant. How would this affect rM and r? I. rM will increase by 1% and r will remain the same. 11. Both rM and r, will decrease by 1%. III. Both rM and ri, will remain the same. IV....
The expected pretax return on three stocks is divided between dividends and capital gains in the ...
The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Expected Dividend $0 Expected Capital Gain $10 Stock 10 a. If each stock is priced at $170, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35% (the effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective...
Suppose rRF = 4%, rM = 10%, and bi = 1.2. What is ri, the required...
Suppose rRF = 4%, rM = 10%, and bi = 1.2. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will increase by 1 percentage point. rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage...
Question 30 3 pts Assume an initial underlying stock price of $20, an exercise price of...
Question 30 3 pts Assume an initial underlying stock price of $20, an exercise price of $20, a time to expiration of 3 months, a risk free rate of 12% and a underlying stock return variance of 16%. If the underlying stock return variance decreased to 14% and assuming other variables are held constant, the call option value would O increase remain the same decrease O indeterminate from the information given
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference...
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: P = 2 Which of the following statements is true? Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends will always increase the stock price. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and...
Suppose investors decrease the rate of return they required to invest in a company's common stock....
Suppose investors decrease the rate of return they required to invest in a company's common stock. everything else equal. what effect will this decrease have on the market value of the company's stock? A. The stock's market value should decrease. B. The stock's market value should not change. C. The stock's market value should increase.
The expected pretax return on three stocks is divided between dividends and capital gains in the...
The expected pretax return on three stocks is divided between dividends and capital gains in the following way! Expected Expected Stock Dividend Capital Gain $10 50 Required: o. If each stock is priced at $195, what are the expected net percentage returns on each stock too) a pension fund that does not pay taxes, a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (ii) an individual with an effective tax rate...
pdPCOA80101. uppose rRF = 796, rM-10%, and bi-1.9. a. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. b. I. Now suppose rRF increases to 8%. The slope of the SML remains constant. How would this affect rM and r? I. rM will increase by 1% and r will remain the same. 11. Both rM and r, will decrease by 1%. III. Both rM and ri, will remain the same. IV....
The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Expected Dividend $0 Expected Capital Gain $10 Stock 10 a. If each stock is priced at $170, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35% (the effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective...
Question 30 3 pts Assume an initial underlying stock price of $20, an exercise price of $20, a time to expiration of 3 months, a risk free rate of 12% and a underlying stock return variance of 16%. If the underlying stock return variance decreased to 14% and assuming other variables are held constant, the call option value would O increase remain the same decrease O indeterminate from the information given
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: P = 2 Which of the following statements is true? Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends will always increase the stock price. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and...
The expected pretax return on three stocks is divided between dividends and capital gains in the following way! Expected Expected Stock Dividend Capital Gain $10 50 Required: o. If each stock is priced at $195, what are the expected net percentage returns on each stock too) a pension fund that does not pay taxes, a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (ii) an individual with an effective tax rate...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 10 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 10 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 10 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 10 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 10 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 10 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 10 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 10 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 10 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 10 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 10 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 10 months ago