Chapter 9 Homework - Pratik Jog

Problem 2

Stock's current value per P = D/(k-g), P = 0.50/(15% - 7%), P =

$6.25 0.50/(0.15 - 0.07),P = 0.50/0.08, P =
share
$6.25

Problem 8
(a) stock value $125 (10% / 8%)$100 = 125
(b) new market value $83.30 $10 / 0.12 = 83.3

Problem 10
Value of stock 5(1+(-0.05))/0.15-(-0.05) = 5(0.95)/0.15
$23 + 0.05 = 4.75/0.20 = 23.75

Problem 12
(a)
-5% $9.50 P0= 2(1+(-.05))/(.15-(-.05)
0% $13.33 P0=2(1+0)/.15-0
5% $21 P0=2(1+.05)/.15-.05
10% $44 P0=2(1+.10)/.15-.10
(b)
15% infinity P0=2(1+.15)/.15-.15
20% -$48.00 P0=2(1+.20)/.15 -.20

No, because rate of

Are results reasonable?
return and cost of
capital are constant

Problem 18a
stock worth today $54.11 D = 1.60, r = 10, gS = 20, gL = 6
expected dividend yield 3.55% 1.920/54.109
capital gains yield 6.45% 10%3.55%