Problem 13 GB&T; is forecasted to pay a dividend of $3 per share next year. Divi
ID: 2616893 • Letter: P
Question
Problem 13 GB&T; is forecasted to pay a dividend of $3 per share next year. Dividends are expected to grow at a constant rate of 4% per year forever. Investors require a retum of 16% to invest in GB&T.; what is the market price of the stock today? ANS: $25.00 Problem 14 ANS: $45 A stock is expected to pay a dividend of $1 80 next year, and its dividend yield is 4%. What is the price of the stock? Problem 15 The dividend for ABC next year is expected to be $2.50 and the stock sells for S55 today. Dividends are expected to grow at a rate of 6% forever. What is the required rate of retum? ANS: 10.55% Problem 16 Consider the same stock from problem 6. What is the expected price of the stock 4 years from now? Problem 17 You buy a share GDL Inc today for $35. One year later, the stock pays a dividend of $3/share and you sell the share for $45. ANS: $69.44 (a) What was your dividend yield? (b) What was your capital gain yield? (c) What was your total return on this investment? ANS: 8 57% ANS: 28.57% ANS: 37.14% Problem 18 The growth of FSL Inc. is 7% per year. The stock Just paid a dividend of S2.75 per share. Învestors require a return of % to vest în FSL share of the stock today? (b) What is the expected price next year? (c) What is your rate of return for a 1 year investment in FSL? a what is the price fa ANS: $10.23, $9.51, 18%Explanation / Answer
Answer 13) A constant dividend growth model
v = d / r-g , d= dividend , r= required return ,g = growth rate od dividend
V = 3/ 0.16-0.04 = $ 25.
Answer 14) V=d / d.y = 1.8 /0.04 = $ 45
Answer 15) v = d / r-g => r = (d/V) + g = 2.5/55 + 0.06 = 0.10545 = 10.55%
Answer 16) PROBLEM 6 is not mentioned for data
Answer 17)
a) d y = Dividend / purcahse price = 3/ 35 = 0.857 = 8.57%
b) Capital gain = capital gain/ purchase price = 10/35 = 0.2857 = 28.57%
c) total gain = (Dividend + gain on sale ) / purchase price = 3+10 / 35 = 37.14 %
Answer 18)
Grwoth rate (g) = -7% and reuired rate(r) = 18% , Current year dividend(D0) = $2.75 ,
for D1 = D0 ( 1+g) = $2.55
a) V = D1 / ( r-g) = 2.55 / ( 0.18 - (-0.07)) = 2.55 / 0.25 = $10.23
b) Next year D2 = D1(1+g) = 2.55 * 0.93 = $ 2.3715
V = 2.3715 / 0.25 = $ 9.51
C) change in price + dividend recieved / purchase price = (( 9.51-10.23)+2.55)/ 10.23 = 18%