Question

Please show steps as I will need to:

1. Preferred stock has a dividend of $12 per year. The required return is 6%. What should be the price per share?

2. Hurricane Corporation expects to grow its dividend by 5% per year. The current dividend is $2 per share. The required return is 8%.

1. What is the estimated value of a share of common stock?
2. If price is $40 and dividends were $1.50 per share but expected to grow at 4% per year, what would be the required rate of return?   

3. Compute the expected return for the following investment

State of nature            Probability                  Return

                              Boom                    25%                             20%

                              Average                 60%                             8%

                              Recession             15%                             0%

4. The following are the expected returns on a portfolio of investments.    What is the expected rate of return on the portfolio?

Investment        # of shares         Price per share        Expected return

A.                    2000                            $20                              10%

B.                    3000                            $10                              15%

             C.                    1000                            $15                              8%

Answer 1

Answer:

Question 1:

Hence, the preferred stock price is $200.

Question 2A:

Hence, the estimated value of common stock is $70.

Question 2B:

Hence, the required rate of return is 7.90%.

Question 3:

Hence, the expected return is 9.80%.

Question 4:

Hence, the portfolio expected return is 11.41%.

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