In: Finance
11 The common stock of Auto Delivery mon stock of Auto Deliveries sells for $28,16 a share. The stock is expected to pay a $1.35 dividend next year and the market expects the firm to grow by 3% annually. What is the rate of return on the stock?
7.42% 7.79% 19.67% 20.14% 20.86%
12 Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at a rate of 3.8% per year. The stock is selling for $26.91. What is the market expected rate of return?
13.88% 14.03% 14.21% 14.37% 14.60%
13 UMD pays an annual dividend that is expected to increase by 3.6 percent per year. The stock has a market rate of return of 12.6% and sells for $28.50 a share. What is the expected amount of the next dividend?
$2.03 $2.57 $3.17 $2.20 $2.28
14 The dividend yield is computed by dividing next year's quarterly dividend by the price of the current stock.
True False
15 Alva Edison has a beta ratio of 0.75 and is expected to grow by 3.5% over the next 5 years. The current relevant US Treasury Rate is 2.45%. What is the expected return on equity for the firm if the expected market return is 8.25%?
ANSWER :
11.
Given :
P0 = 28.16 ($)
D1 = 1.35 ($)
g = 3 % = 0.03
Now,
Market rate of return, r
= D1 / P 0 + g
= 1.35 / 28.16 + 0.03
= 0.0779
= 7.79 %
Market rate of return is : Option B. 7.79% (ANSWER).
12.
Given :
P0 = 26.91 ($)
D0 = 2.80 ($)
g = 3.8% = 0.038
So,
D1 = 2.80(1 + 0.038) = 2.9064 ($)
Now,
Market rate of return, r
= D1 / P 0 + g
= 2.9064 / 26.91 + 0.038
= 0.1460
= 14.60 %
So, expected market rate of return = Option E. 14.60 % (ANSWER)>
13.
Given :
P0 = 28.50 ($)
r = 12.6% = 0.126
g = 3.6% = 0.036
Now,
r = D1 / P 0 + g
=> 0.126 = D1 / 28.50 + 0.036
=> D1 = (0.126 - 0.036) *28.50
=> D1 = 2.57 ($)
So, expected dividend next year = D1 = Option B. $2.57 (ANSWER) .
14.
B. False.
15.
AS per CAPM model :
rE = rF + b ( rM - rF)
= 2.45 + 0.75 (8.25 - 2.45)
= 6.8 %
So, expected return on equity = rE = Option B. 6.8% (ANSWER).