If 1) the expected return for Litchfield Design stock is 19.65 percent; 2) the dividend is...

If 1) the expected return for Litchfield Design stock is 19.65 percent; 2) the dividend is expected to be 2.34 dollars in 2 year(s), 5.7 dollars in 4 years, and 9.33 dollars in 7 years; and 3) after the dividend is paid in 7 years, the dividend is expected to grow by 2.44 percent per year forever, then what is the current price of the stock? If no expected dividend is mentioned for a given year, assume the expected dividend is $0 for that year.

Expert Solution

Calculation of current price:
year	Cashflows	PVF @19.65%	Present value
1	-	0.836	-
2	2.34	0.699	1.63
3	-	0.584	-
4	5.70	0.488	2.78
5	-	0.408	-
6	-	0.341	-
7	9.33	0.285	2.66
7	55.54	0.285	15.83
Total			22.90
Current price is $22.90

Working:
Terminal value= Dividend(1+growth)/(return-growth)
=9.33*(1+0.0244)/(0.1965-0.0244)= 55.54

jeff jeffy answered 2 years ago

Today, you sold 1 share of Litchfield Design stock. The percentage return over the past quarter...

Today, you sold 1 share of Litchfield Design stock. The percentage return over the past quarter (from 3 months ago to today) for these shares was 9.86 percent. You purchased the shares 3 months ago at a price of 111.98 dollars per share. You just received 6.36 dollars in dividends. What was the price of the stock when you sold it?

Expected return of stock Alpha is 8 percent and of stock Beta is12 percent. The...

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The standard deviation of the stocks are 13 percent and 18 percent respectively. The correlation between these two stocks is 0.4. If the portfolio manager has decided to invest all the funds that he holdsin some proportion in these two assets. The expected return ofthe portfolio based on this proportion is 11.5%. What are the weightsin each of the stocks? What isthe standard deviationofthisportfolio?

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The...

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The standard deviation of the stocks are 13 percent and 18 percent respectively. The correlation between these two stocks is 0.4. If the portfolio manager has decided to invest all the funds that he holds in some proportion in these two assets. The expected return of the portfolio based on this proportion is 11.5%. What are the weights in each of the stocks? What is...

The common stock of Etisalat has an expected return of 11 percent. The return on the...

The common stock of Etisalat has an expected return of 11 percent. The return on the market is 3 percent and the risk-free rate of return is 19 percent. What is the beta of this stock? Answer in 2 decimal places

Stock S is expected to return 12 percent in a boom and 6 percent in a...

Stock S is expected to return 12 percent in a boom and 6 percent in a normal economy. Stock T is expected to return 20 percent in a boom and 4 percent in a normal economy. There is a 40 percent probability that the economy will boom; otherwise, it will be normal. What is the portfolio variance if 30 percent of the portfolio is invested in Stock S and 70 percent is invested in Stock T? A. .002220 B. .008080 C. .006224 D....

The expected return on Natter Corporation’s stock is 18%. The stock’s dividend is expected to grow...

The expected return on Natter Corporation’s stock is 18%. The stock’s dividend is expected to grow at a constant rate of 14%, and it currently sells for $50 a share. Which of the following statements is CORRECT? a. The stock price is expected to be $57 a share one year from now. b. The current dividend per share is $4.00. c.The stock’s dividend yield is 8%. d.The stock’s dividend yield is 7%. e.The stock price is expected to be $54...

11-2 The stock of Bruin, Inc., has an expected return of 27 percent and a standard...

11-2 The stock of Bruin, Inc., has an expected return of 27 percent and a standard deviation of 40 percent. The stock of Wildcat Co. has an expected return of 14 percent and a standard deviation of 45 percent. The correlation between the two stocks is 0.45. Calculate the expected return and standard deviation of the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) QUESTION ANSWER BELOW Expected return...

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5...

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5 and the risk-free rate is 5 percent. What is the market risk premium? (Answer in a percentage, but do not include the % sign and round to two decimal places, i.e., 18.35)

1. A stock has an expected return of 8.4 percent, its beta is 1.80, and the...

1. A stock has an expected return of 8.4 percent, its beta is 1.80, and the risk-free rate is 3.5 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) 2. A stock has a beta of .8 and an expected return of 11 percent. If the risk-free rate is 4.5 percent, what is the market risk...

The last dividend was $2. The dividend is expected to grow steadily at 8 percent. The...

The last dividend was $2. The dividend is expected to grow steadily at 8 percent. The required return is 16 percent. What is the price of the stock today? What is the dividend in 5 years, and the price in five years? If the stock is selling at $30, is it worth buying? Why?

Question