Wald Inc's stock has a required rate of return of 10%, and i

____ 18. Wald Inc's stock has a required rate of return of 10%, and it sells for $40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?
a. $1.10
b. $1.20
c. $1.00
d. $1.30
e. $0.90

____ 22. Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate of 20% for the next 4 years, after which there will be no growth (g  0) in earnings and dividends. The company's last dividend, D0, was $1.50. MHI's beta is 1.5, the market risk premium is 6%, and the risk-free rate is 4%. What is the current price of the common stock?
a. $25.87
b. $19.63
c. $23.57
d. $17.51
e. $21.66

____ 23. Wagner Lumber Company hired you to help them estimate their cost of capital. You were provided with the following data: D1  $1.25; P0  $40; g  6% (constant); and F  5%. The firm must issue new stock; what is the cost of equity raised by selling new common stock?
a. 9.62%
b. 9.40%
c. 9.99%
d. 9.85%
e. 9.29%

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____ 18. Wald Inc's stock has a required rate of return of 10%, and it sells for $40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?
a. $1.10
b. $1.20
c. $1.00
d. $1.30
e. $0.90

Answer: B

P = D1 where D1 is the dividend one year from now
(k - g) k is the required rate of return
g is the growth rate
P is the current price

40 = D1
(0.10 - 0.07)

D1 = 1.20

____ ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the expected year-end dividend, D1.

You have observed the following returns over time. Assume that the risk free rate is 6% and the market risk premium is 5%.
Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19% 7% 10%
2008 -16% -5% -12%
2009 3% 1% 1%
2010 2

Problem: Suppose you are the money manager of a $4 million investment fund. The fund consists of four stocks with the following betas:
Stock Investment Beta
A $0.4 million 1.5
B $0.6 million (0.50)
C $1.0 million 1.25
D $2.0 million 0.75
If the market requiredrate of return is 14 percent and the risk-

The company is paying the dividend of $4.37 andhas a growth rate of 6.5%. The stock is currently selling for $175.
Calculate the requiredrate of return.

The beta coefficient for stock C is bc=0.4 and that for stock D is bd=-.05. (stock D's beta is negative, indicating that its rate of return rises
whenever returns on most other stocks fall. There are very few negative beta stocks, although collection agency and gold mining stokcs
are sometimes cited as examples)

See attached file.
8- 1 EXPECTED RETURN
A stock's returns have the following distribution:
Calculate the stock's expected return, standard deviation, and coefficient of variation.
8- 3 REQUIREDRATE OF RETURN
Assume that the risk- free rate is 6% and the expected return on the market is 13%. What is the required

Find the requiredrate of return of a stock if the dividend is $4.45 per share, dividend growth rate of 6.5 % and the price of stock is $101 per share.
Thanks!

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2. RequiredRate of Return
AA Industries stockhas a beta of 0.8. The risk-free rate is 4% and the expected return on the market is 12%. What is the requiredrate of return on AA's stock?
10. Portfolio RequiredReturn
Suppose you manage a $4 million fund that consists of four stocks with the following investments:
Stock