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Stock prices and returns; Principal / Agent

1. A stock that pays a constant dividend of $1.5 forever currently sells for $10.71. What is the required rate of return?
A.10%
B.12%
C.13%
D.14%
E.15%
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2. X hires Y investment bank to negotiate the purchase of the fiber optic assets of Z. Identify the parties to this transaction:
A. Y is the principal and X is the agent
B. X is the principal and Y is the agent
C. Z is the principal and X is the agent
D. Y is the agent while X and Z together are principals
E. X is the principal and Z is the agent

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3. What would you pay for a share of X Corp stock today if the next dividend will be $3 per share, your required return on equity investments is 15%, and the stock is expected to be worth $90 one year from now ?
A. 78.26
B. 80.87
C. 82.56
D. 90
E. 98.12

Solution Preview

1. A stock that pays a constant dividend of $1.5 forever currently sells for $10.71. What is the required rate of return?
A.10%
B.12%
C.13%
D.14%
E.15%
-------------
Answer: D.14%

Constant Dividend /return = Price
Or return = Constant Dividend / Price = $1.5/$10.71= ...

Solution Summary

The solution provides answers to 3 questions on: required rate of return on stock; parties (principal, agent) to the transaction in the purchase of assets; price of stock.

$2.19