Expected growth rate, required rate of return, current price
Not what you're looking for?
Please show work you can use either calculator.
Other things being equal, an increase in a firm's expected growth rate would cause its required rate of return to
a. fluctuate more than before.
b. fluctuate less than before.
c. decrease.
d. increase.
e. possibly increase, possibly decrease, or possibly remain constant.
Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT?
a. Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.
b. If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's.
c. Stock B must have a higher dividend yield than Stock A.
d. Stock A must have a higher dividend yield than Stock B.
e. If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's.
Which of the following statements is CORRECT, assuming stocks are in equilibrium?
a. Assume that the required return on a given stock is 15%. If the stock's dividend is growing at a constant rate of 4%, its expected dividend yield is 6%.
b. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
c. A required condition for one to use the constant growth model is that the stock's expected growth rate is lower than its required rate of return.
d. A stock's dividend yield can never exceed its expected growth rate
e. All of the above statements are correct
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is r = 10.5%, and the expected constant growth rate is g = 6.0%. What is the stock's current price?
a. $16.67
b. $18.50
c. $20.83
d. $15.83
e. $18.67
Gay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year. The stock sells for $21.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $2.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?
Purchase this Solution
Solution Summary
The solution computes Expected growth rate, required rate of return, stock equilibrium, current price.
Purchase this Solution
Free BrainMass Quizzes
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce