Question

6.Belinda's broker called her recently with an offer to buy Verizon (VZ) common stock for $52 per share. Her broker promised to repurchase the shares in one year for $56 per share. If Belinda accepts this deal, what is her required return? The stock is not expected to pay a dividend next year.

A. 7.14%B. 7.69%C. 10.00%D. 12.50%E. 5.60%

7.Which of the following statements is (are) correct?(x)If the expected rate of return on a stock exceeds the required ratethen the stock is probably a good buy.(y)High yield stocks pay out a large portion of their net earnings as dividends and low yield stocks retain most of their earnings to reinvest in the company.(z)Stocks for which the stock price is low compared to earnings or to theaccounting value of the firm's assets are known as value stocks.

A.(x), (y) and (z)

B.(x) and (y) only

C.(x) and (z) only

D.(y) and (z) only

E.(x) only

Answer 1

6)

Required return:

= Increase in share price/Beginning share price

= ($56-$52)/$52

= $4/$52

= 7.69%

Hence, correct option is B. 7.69%