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##### 2. An investor requires a return of 12 percent. A...

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2. An investor requires a return of 12 percent. A stock sells for \$25, it pays a dividend of \$1, and the dividends compound annually at 7 percent. Will this investor find this stock attractive? What is the maximum amount that this investor should pay for the stock? 4. The annual risk-free rate of return is 9 percent and the investor believes that the market will rise annually at 15 percent. if a stock has a beta coefficient of 1.5 and its current dividend is \$1, what should be the value of the stock if its earnings and dividends are growing annually at 6 percent? 7. Your Broker suggests that the stock of QED is a good purchase at \$25. You do an analysis of the firm, determining that the \$1.40 dividend and earnings should continue to grow indefinitely at 8 percent annually.The firm's beta coefficient is 1.34, and the yield on Treasury bills is .4 percent. If you expect the market to earn a return of 12 percent, should you follow your broker's suggestion? 3 Given the following information concerning stocks, Price Number of Shares Stock A \$10 100,000 Stock B 17 50,000 Stock C 13 150,000 Stock D 20 200,000 a) Construct a simple price weighted average, a value weighted average, and a geometric average. b)What is the percentage increase in each average if the stock's prices become: 1) A: \$10, B: \$17, C: \$13, D:\$40 2) A: \$10, B:\$34, C: \$13, D: \$20 c) Why were the percentage changes different in 1 and 2? 10. A stock costs \$80 and pays a \$4 dividend each year for 3 years. a) If an investor buys the stock for \$80 and expects to sell it for \$100 after three years, what is the anticipated annual rate of return? b) What would be the rate of return if the purchase price were \$60? c)What would be the rate of return if the dividend were \$1 annually and the purchase price were \$80 and the sale price were \$100? 12. You purchase stock for \$40 and sell if for \$50 after holding it for 5 years. During this period you collected an annual dividend of \$2. Did you earn more than 12 percent on your investment? What was the annual dollar weighted rate of return? 16. You read that stock A is trading for \$50 and is down 50 percent for the year. Stock B is also trading for \$50 but has risen 100 percent for the year. If the investor had purchased one share of each stock at the beginning of the year, what can you conclude has happened to the value of the portfolio. 1. A firm has the following items on its balance sheet: Cash \$ 20,000,000 inventory 134,000,000 Notes Payable to bank 31,500,000 common stock (\$10 par; 1,000,000) 10,000,000 Retained earnings 98,500,000 Describe how each of these account would appear after: a) A cash dividend of \$1 per share b) A 10 percent stock dividend (fair market value of stock is \$13 per share) c) A 3-for-1 stock splits d) A 1 for 2 reverse stock split 2. A company whose stock stock is selling for \$60 has the following balance sheet: Assets \$30,000,000 Liabilities \$14,000,000 Preferred stock 1,000,000 Common stock (\$12 par; 100,000 shares outstanding) 1,200,000 Paid-in capital 1,800,000 Retained earnings 12,000,000 a) Construct a new balance sheet showing the effects of 3 for 1 stock split, What is the new price of the stock? b) Construct a new balance sheet showing the effects of a 10 percent stock dividend. What will be the approximate new price of the stock? 3. An investor who buys 100 shares for \$40 a share of a stock that pays a per-share dividend of \$2 annually signs up for the dividend reinvestment plan. If neither the price of the stock nor the dividend is changed, how many shares will the investor have at the end of ten years.

Paper#3924 | Written in 18-Jul-2015

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