Posted: March 1st, 2014
22.  The Fridge-Air Company’s preferred stock pays a dividend of $4.50 per share annually.  If the required rate of return on comparable quality preferred stocks is 14%, calculate the value of Fridge-Aire’s preferred stock.
23. Â The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Â Investors believe the nominal risk-free rate is 4% and that this stock should have a risk premium of 6%. Â What should be the value of this stock?
24. Â The Lo Company earned $2.60 per share and paid a dividend of $1.30 per share in the year just ended. Â Earnings and dividends per share are expected to grow at a rate of 5% per year in the future. Â Determine the value of stock:
a. if the required rate of return is 12%.
b. if the required rate of return is 15%.
c. Given your answers to a & b, how are stock prices  affected by changes in investor’s required rate of return?
P2
In late 2010, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. Â The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Â Notwithstanding the success of the company, competitors are gaining much strength. Â Further, your analysis indicates that the stock may be over-priced based on your projection of future earning growth. Â Your analysis, however, was the same one year ago and the earnings have continued to increase. Â Actions that you might take range from an outright sale of the stock (and the payment of capital gains tax) to doing nothing and continuing to hold the shares. Â You reflect on these choices as well as other actions that could be taken. Â Describe the various actions that you might take and their implications.
P6
Find the real return on the following investments:
Stock  Nominal Return  Inflation
A Â 10% Â Â 3%
B Â 15% Â Â 8%
C Â -5% Â Â 2%
P8
The countries of Stabilato and Variato have the following average returns and standard deviations for thei stocks, bond, and short-term government securities.  What range of returns should you expect to earn 95% of the time for each asset class in you invested in Stabilato’s securities?  From investing in Variato’s securities?
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