Purchase Solution

Computing A Stock's Return From Dividends and Appreciation

Not what you're looking for?

Ask Custom Question

Weyerhaeuser, the forest products producer, traded at $42 at the beginning of 1996. Beta services typically places its beta at 1.0 with a market risk premium of 6 percent. The risk free rate at the end of 1995 was 5.5 percent. The firm was expected to pay dividends of $1.60 per share in 1996 and 1997. Use CAPM to calculate the expected return, and at what price you expect Weyerhaeuser to sell at the end of 1997 if it does pay the dividends?

Purchase this Solution
Solution Summary

This solution illustrates how to compute a stock's total return using the Capital Asset Pricing Model and how to allocate it between dividends and price appreciation.

Solution Preview

The Capital Asset Pricing Model states that the return on an investment is the sum of the risk-free rate and the product of the market risk premium (i.e., the premium over the risk-free rate investors will demand to invest in the "risky" stock market) and the investment's beta (i.e., relative ...

Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

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.

View More Free Quizzes
Related BrainMass Solutions

  • Stock Return and Standard Deviation

    551519 The solution gives detailed steps on computing the stock's return and its standard deviation. All formula and calculations are shown and explained.

  • Johnson Controls Inc Stock Evaluation: market cap, risk, premium, beta, value

    Finance and Google finance. How did you calculate your stock's intrinsic value? How did you arrive at a terminal value? What was your terminal value? What were your results?

  • Common stock valuation

    13718 Common stock valuation dividends The common stock of KPD paid $1 in dividends last year. Dividends are expected to grow at an 8 percent annual rate for an indefinite number of years. a.

  • Stock's expected return and standard deviation

    The solution gives step by step procedure for computing stock's expected return, standard deviation, and coefficient of variation.

  • preferred stock vs. common stock

    Capital appreciation occurs when a stock's value increases over the amount initially paid for it. Dividends, which are taxable payments, are paid to a company's shareholders from its retained or current earnings.

  • stocks and dividends

    377366 Stocks and Dividends 1. Paid dividend of $2 per share. Expected to grow at a constant rate of 5% per year, and investors require a 15% rate of return on the stock. What is the stock's value? 2.

  • Ludwig Corporation: Growth Rate in Dividends and Yield

    This solution calculates a stock's growth rate in dividends, the dividend yield, and the total rate of return.

  • Non constant growth stock

    The expected rate of return is 12%. a What is the current stock price? The current price of stock is the present value of the dividends. The dividends will grow at a constant rate from year 3 onwards.

  • Calculate the stock's dividend yield, and capital gains yield

    348054 Calculate the stock's dividend yield, and capital gains yield Assume that a stock sold for $1.90 on January 1 and ended the year at a price of $2.50. In addition, the stock paid dividends of $0.20 per share.

View More Related Solutions