ABZ Corp. just paid a dividend of $1.00 per share. The dividend is expected to grow...

ABZ Corp. just paid a dividend of $1.00 per share. The dividend is expected to grow 6% per year in perpetuity. The stock's beta is 0.85. The risk-free rate is 3%, and the market risk premium is 7%. The current stock price is $37 per share. Assume that one year from now the stock will be correctly valued.

What are the dividend yield, capital gain yield and expected return for the coming year?

Draw the Security Market Line and plot the stock on it. Be sure to label relevant points.

Solutions

Expert Solution

Calculations are done by using the following formulas:

Dividend Yield = (DPS / MPS)*100

Expected Return (k_e) = R_f + Beta * RP_m

Original Market Price (P_o) = D₁ / (K_e - g)

Capital Gain Yield = (P₁ - P₀) / P₀

Security Market Line (SML) is a graphical representation which shows the risk as against the expected return.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow...

ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 25 percent for the next 7 years and then level off to a 7 percent growth rate indefinitely. If the required return is 15 percent, what is the price of the stock today?

A7X Corp. just paid a dividend of $1.35 per share. The dividends are expected to grow...

A7X Corp. just paid a dividend of $1.35 per share. The dividends are expected to grow at 40 percent for the next 9 years and then level off to a growth rate of 5 percent indefinitely. If the required return is 12 percent, what is the price of the stock today?

A7X Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow...

A7X Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 35 percent for the next 8 years and then level off to a growth rate of 6 percent indefinitely. If the required return is 14 percent, what is the price of the stock today? Multiple Choice $92.39 $2.93 $90.58 $88.77 $66.62

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected...

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 23% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 18% per year. a. What is your estimate of the intrinsic value of a share of the stock? (Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal...

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected...

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 22% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 17% per year. a. What is your estimate of the intrinsic value of a share of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) b....

MMM Co. just paid a dividend of $1.10 per share. The dividend is expected to grow...

MMM Co. just paid a dividend of $1.10 per share. The dividend is expected to grow by 30% next year, 90% in both Years 2 & 3, 20% in Year 4, and then grow at a constant rate of 4% thereafter. The required rate of return is 5%. Compute the selling price of the stock.

1. Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at...

1. Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at 7%, 6%, and 4% for the next three years respectively. After that the dividends are expected to grow at a constant rate of 3% indefinitely. Stockholders require a return of 8 percent to invest in Membo’s common stock. Compute the value of Membo’s common stock today.

Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow...

Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow at a 14.5 percent rate for the next five years and then level off to a 9.5 percent growth rate indefinitely. If the required return is 12.5 percent, what is the value of the stock today? What if the required return is 17.5 percent?

Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at 7%,...

Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at 7%, 6%, and 4% for the next three years respectively. After that the dividends are expected to grow at a constant rate of 3% indefinitely. Stockholders require a return of 8 percent to invest in Membo’s common stock. Compute the value of Membo’s common stock today.

Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow...

Subjects