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Use the following information to answer questions 6, 7 and 8. A stock currently trades for...

Use the following information to answer questions 6, 7 and 8. A stock currently trades for $30 share and is expected to pay a dividend of $1.20 in one year. Its expected price right after paying that dividend is $33.

6-The expected dividend yield is closest to:

Group of answer choices

a.4.20%

b.3.60%

c.3.40%

d.4.00%

7.The expected capital gain rate is closest to:

Group of answer choices

a.6.0%

b.4.0%

c.14.0%

d.10.0%

8-Assuming the stock is correctly priced, the cost of capital is closest to:

Group of answer choices

a.6.0%

b.14.0%

c.10.0%

d.4.0%

9-Suppose the S&P500 index is priced according to the Gordon model. The total cash payout next year is expected to be 4.3% of the current market value of the index. The total cash payout is then expected to grow at 1.5% forever. The expected return on the S&P500 implied by the Gordon model is closest to:

Group of answer choices

a.1.5%

b.9.71%

c.5.8%

d.4.3%

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago
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