Question

Use the information to answer the following questions. • Thames Inc.'s most recent dividend was $2.40 per share. The dividend is expected to grow at 3% per year. • The T-bill rate is 5% and the market return rate is 9%. • The company's beta is 1.3. What is the required rate of return for the stock? Select one: a. 14.0% b. 14.2% c. 10.2% d. 16.7% e. 13.0% Continued from previous question. What is the expected price of the stock two years later? Select one: a. $72.14 b. $35.36 c. $36.42 d. $37.83 e. $57.14 Which of the following statements is most correct? Select one: a. Other things equal, the higher the required rate of return, the higher the stock price. b. Other things equal, the lower the market value of debt, the lower the value of equity. c. Other things equal, the higher the dividends, the lower the stock price. d. Other things equal, the investment holding period does not affect the stock price. e. Other things equal, the higher the dividend growth rate, the lower the stock price.

Answer 1

Anwer 1) Required salt of Return (ke) = Risk full nate of Betax (Market rate of them - chum - Risk free nake) $% + 1-3 *(9%, -54.) 57.+ 1.3 * YY 5%+ 5.20 7. 11 10.2o4. Amwar. 2) fatu Expected frie 2 year p25 D3 when D3 Dividend in year3. Ge Growth neate ke-u D3 De (144) $ 2.90x{170.03) $ 2-40% 1092727 $ 2.622545 Pri $2.622545 $2.622545 $36.42 10.204.-37. 7-20% Amon Other things equal, the investment holding period does not affect the stock price.