Final examination revision

Question 1: The FI Corporation’s dividends per share are expected to grow

indefinitely by 5% per year.

a. If this year’s year-end dividend is $8 and the market capitalization rate is

10% per year, what must the current stock price (p0) be according to the
DDM?

D1/(k-g)=160=p0

b. If the expected earnings per share are $12, what is the implied value of the
ROE on future investment opportunities?

B= Flow back ratio=8/12=2/3

flow back=2/3, g= flow back ratio.ROE=> ROE= 15%

c. How much is the market paying per share for growth opportunities (i.e., for
an ROE on future investments that exceeds the market capitalization rate)?

PVGO= p0-e1/k= 160 – 12/10%= 40đ

Question 2: The risk-free rate of return is 10%, the required rate of return on the
market is 15%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per
share expected during the coming year, D1, is $2.50 and g 5%, at what price should a
share sell?

Question 3:

a. IBX’s stock dividend at the end of this year is expected to be $2.15, and it is
expected to grow at 11.2% per year forever. If the required rate of return on
IBX stock is 15.2% per year, what is its intrinsic value?

P0= dividend/(k-g)=
b. If IBX’s current market price is equal to this intrinsic value, what is next year’s
expected price?
 P1=( dựa vào growth rate)
c. If an investor were to buy IBX stock now and sell it after receiving the $2.15
dividend a year from now, what is the expected capital gain (i.e., price
appreciation) in percentage terms? What is the dividend yield, and what would be
the holding-period return?

Question 4:

You expect the price of IBX stock to be $59.77 per share a year from now. Its current
market price is $50, and you expect it to pay a dividend one year from now of $2.15
per share.
a. What is the stock’s expected dividend yield, rate of price appreciation, and holding-
period return?
b. If the stock has a beta of 1.15, the risk-free rate is 6% per year, and the expected
rate of return on the market portfolio is 14% per year, what is the required rate of
return on IBX stock?
c. What is the intrinsic value of IBX stock, and how does it compare to the current
market price?

Question 5: Determine price of FI corporation common stock with the following

information:

a. The current dividends per share in 2024 of APD corporation is $3.50.= dividend
b. In the next three years, the firm’s dividends per share growth rate is 16.5%(g) and
beta of 0.6 when the firm enters a high growth period.
c. After that, the firm will experience stable growth period with growth rate of 9% and
beta of 1.4

Given the information that risk free rate is 5.5% and market risk premium is 10%.
Tính k: K stable= 19.5%, k high growth= 11.5

Dividend ở year 1= 4.0775

Year 2= 4.7502

Year 3= 5.5339

Year 4= 6.032, kết quả= 41.44

Cash flow ỏ year 4= 57,44(k stable)

ở discount cf : CF/(1+k high growth )^t=> cái cuối dừng ở t=3

Question 6: A common stock pays an annual dividend per share of $2.10. The risk-free rate
is 7%, and the risk premium for this stock is 4%. If the annual dividend is expected to remain
at $2.10, what is the value of the stock?

Question 7:

a. Computer stocks currently provide an expected rate of return of 16%. MBI, a large
computer company, will pay a year-end dividend of $2 per share. If the stock is selling at $50
per share, what must be the market’s expectation of the growth rate of MBI dividends?
b. If dividend growth forecasts for MBI are revised downward to 5% per year, what will
happen to the price of MBI stock? What (qualitatively) will happen to the company’s price–
earnings ratio?