1. Compute the price of a share of stock that pays a $1- per-year divi

QUESTION

1. Compute the price of a share of stock that pays a $1- per-year dividend and that you expect to be able to sell in one year for $20, assuming you require a 15% return.
2. After careful analysis, you have determined that a firm s dividends should grow at 7% on average in the foreseeable future. Its last dividend was $3. Compute the current price of this stock, assuming the required return is 18%.
3. If the public expects a corporation to lose $5 a share this quarter and it actually loses $4, which is still the largest loss in the history of the company, what does the efficient market hypothesis say will happen to the price of the stock when the $4 loss is announced?
4. An index has an average (geometric) mean return over 20 years of 3.8861%. If the beginning index value was 100, what was the final index after 20 years?
1. Price = 21/1.15 = 18.26 2. Price = (3*1.07)/(.18-.07) = 29.18 3. Price will be up in the market after announcement of actual loss. Because of efficient market hypothesis price must have been reduced previously¦

in anticipation of $5 loss but now since actual loss is < forecast, price will be upwards. 4. Final index = 100*(1+.038861)^20 = 214.3625   ANSWER: CLICK REQUEST FOR  AN EXPERT SOLUTION