he price of a stock is:
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- A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends and the price at which a stock is expected to be sold to equal the current price of the stock. O True O False CUnder which of the following circumstances would you want to buy a stock? Select one: a. The HPR is greater than zero. b. A stock's holding period return is greater than the CAPM return c. A stock's CAPM return is greater than its holding period return d. The stock's price is higher than its valueExplain how to find the value of a stock given itslast dividend, its expected growth rate, and itsrequired rate of return.
- Let's explore the difference between "expected" and "actual" return of a stock. 1) How might we calculate what the expected return of a stock should be? 2) How might we calculate the "actual" return of a stock?What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceHow do stock prices vary with the following: 1. the expected growth rate of dividends (earnings); 2. the benchmark (risk-free) interest rate: 3. the equity premium
- When calculating a fair value for a stock you are considering buying you should consider all the following factors, EXCEPT: D O Timing of future dividend payments O The required rate of return O How long you expect to keep it O Value of future dividend paymentsWhich of the following events are likely to increase the market value of a calloption on a common stock? Explain.a. An increase in the stock’s priceb. An increase in the volatility of the stock pricec. An increase in the risk-free rated. A decrease in the time until the option expiresIllustrate the impact of changes in the dividend, the growth rate, the expected return on the market, and the beta on the value of a stock.
- Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?1. The rate at which a stock's price is expected to appreciate (or depreciate) is called the yield. A. current B. total C. dividend D. capital gains 2. The underlying assumption of the dividend growth model is that a stock is worth: A. the present value of the future income that the stock generates. B. the same amount to every investor regardless of his desired rate of return. C. an amount computed as the next annual dividend divided by the market rate of retum. D. an amount computed as the next annual dividend divided by the required rate of return. 3. The total rate of return earned on a stock is composed of which two of the following? 1. current yield II. yield to maturity III. dividend yield IV. capital gains yield A. I and II only B. I and IV only C. II and III only D. III and IV only 4. Which one of the following correctly defines the constant dividend growth model? A. R = (D₁ Po) + g B. Po = (D₁R) + g C. R=(Po Do) + g D. Po = Do ] (R-g) 5. How much are you willing to pay for one…Calculate the Holding Period Return (HPR) for the portfolio of the three stocks mentioned in Table 1. Calculate the Holding Period Return (HPR) for each of the stock A, B, and C individually given in Table 1. C. Based upon your calculations, evaluate the Holding Period Return (HPR) to exhibit what change in wealth has taken place?