Ana has bought shares of RIO, Inc. stock for $25.00 per share. She expects a 1.00...

Ana has bought shares of RIO, Inc. stock for $25.00 per share. She expects a 1.00 dividend at the end of this year. After 2 years, she expects to receive a dividend of $1.25 and to sell the stock for $28.75. What is Ivonne's required rate of return? (I will not be using Excel for this problem, please show me how to do it with a calculator --show formula if possible

Expert Solution

Required rate of Ret is the Rate at which PV of Cash Inflows are equal to Stock price.

Year	Cf	PVF @11%	Disc CF	PVF @12%	Disc CF
0	$ -25.00	1.0000	$ -25.00	1.0000	$ -25.00
1	$ 1.00	0.9009	$ 0.90	0.8929	$ 0.89
2	$ 1.25	0.8116	$ 1.01	0.7972	$ 1.00
2	$ 28.75	0.8116	$ 23.33	0.7972	$ 22.92
NPV			$ 0.25		$ -0.19

PVF = 1/(1+r)^n

Disc CF = CF * PVF

Req Rate = Rate at which least +_ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in DIsc rate ] * 1%

= 11% + [ 0.25 / 0.44 ] * 1%

= 11% + 0.57%

= 11.57%

jeff jeffy answered 1 month ago

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and...

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

Suppose you bought 100 shares of stock at an initial price of $37 per share. The...

Suppose you bought 100 shares of stock at an initial price of $37 per share. The stock paid a dividend of $0.28 per share during the following year, and the share price at the end of the year was $41. (1) What is your total dollar return on this investment? (2) What is the percentage return on the investment?

Suppose you bought 550 shares of stock at an initial price of $50 per share. The...

Suppose you bought 550 shares of stock at an initial price of $50 per share. The stock paid a dividend of $0.54 per share during the following year, and the share price at the end of the year was $45. a. Compute your total dollar return on this investment. (A negative value should be indicated by a minus sign.) b. What is the capital gains yield? (A negative value should be indicated by a minus sign. Do not round intermediate...

Ivy bought some shares of stock and, over the next year, the price per share increased...

Ivy bought some shares of stock and, over the next year, the price per share increased by 5 percent, while the price level went up by 3%. Before taxes, Ivy experienced a. both a nominal gain and a real gain, and Ivy paid taxes on the nominal gain. b. both a nominal gain and a real gain, and Ivy paid taxes only on the real gain. c. a nominal gain, but no real gain, and Ivy paid taxes on the...

Evanston Insurance, Inc., has purchased shares of Stock E at $50 per share. It will sell...

Evanston Insurance, Inc., has purchased shares of Stock E at $50 per share. It will sell the stock in six months. It considers using a strategy of covered call writing to partially hedge its position in this stock. The exercise price is $53, the expiration date is six months, and the premium on the call option is $2. Complete the following table: POSSIBLE PRICE OF STOCK E IN SIX MONTHS PROFIT OR LOSS PER SHARE IF A COVERED CALL STRATEGY...

On January 1, 2013, an investor bought 300 shares of Gottahavit, Inc., for $51 per share....

On January 1, 2013, an investor bought 300 shares of Gottahavit, Inc., for $51 per share. On January 3, 2014, the investor sold the stock for $56 per share. The stock paid a quarterly dividend of $0.35 per share. How much (in $) did the investor earn on this investment and, assuming the investor is in the 33%tax bracket, how much will she pay in income taxes on this transaction? Assume a preferential tax rate of 15% on dividends and...

On January 1, 2013, an investor bought 300 shares of Gottahavit, Inc., for $69 per share....

On January 1, 2013, an investor bought 300 shares of Gottahavit, Inc., for $69 per share. On January 3, 2014, the investor sold the stock for $74 per share. The stock paid a quarterly dividend of $0.24 per share. How much(in $) did the investor earn on this investment and, assuming the investor is in the 33% tax bracket, how much will she pay in income taxes on this transaction? Assume a preferential tax rate of 15% on dividends and...

Hardy Locks, Inc. common shares sell for $32 per share. The firm expects to set their...

Hardy Locks, Inc. common shares sell for $32 per share. The firm expects to set their next annual dividend at $2 per share and it expects future dividends to grow at 8 percent per year, indefinitely. The current risk-free rate is 2 percent, the expected rate on the market is 10 percent, and the stock has a beta of 1.5. Using the constant growth model, the firm's cost of equity is more than 13.75 percent but less than 14.50 percent...

Nico bought 100 shares of Cisco Systems stock for $30.00 per share on January 1, 2013....

Nico bought 100 shares of Cisco Systems stock for $30.00 per share on January 1, 2013. He received a dividend of $2.00 per share at the end of 2013 and $3.00 per share at the end of 2014. At the end of 2015, Nico collected a dividend of $4.00 per share and sold his stock for $33.00 per share. What was Nico's realized holding period return? -36.36% +36.36% -40% +40%

McCann Catching, Inc. has 2.00 milion shares of stock outstanding. The stock currently sells for $12.64 per share

McCann Catching, Inc. has 2.00 milion shares of stock outstanding. The stock currently sells for $12.64 per share. The firm's debt is publicly traded and was recently quoted at 91.00% of face value. It has a total face value of $17.00million , and it is currently priced to yield 9.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.29. The corporate tax rate is 38.00%.The firm...

Question