1- An investor purchases the common stock of a well‐known company, Toma Inc., for $25 per...

1- An investor purchases the common stock of a well‐known company, Toma Inc., for $25 per share. The expected dividend for the next year is $3 per share, and the investor is confident that the stock can be sold one year from now for $30. What is the implied rate of return?

2- Johnson and Johnson Pharmaceuticals (J&J) is expected to earn $2 per share next year. J&J has a payout ratio of 40 percent. Earnings and dividends have been growing at a constant rate of 10 percent per year, but analysts are estimating that the growth rate will be 7 percent a year for the indefinite future. Investors require a 15 percent return on J&J. What is its estimated price?

3- You expect a stock’s dividend to increase by a compound factor of 1.7835 over eight years (compound growth). The current price is $45 . The expected dividend is $2.00. What is the expected return on this stock?

Solutions

Expert Solution

1.
=(3+30)/25-1=32.00%

2.
=2*40%/(15%-7%)=10.00

3.
=2/45+(1.7835)^(1/8)-1=11.9446115154278%

jeff jeffy answered 1 year ago

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