Problem 7.12 – How Much Will You Pay for the Stock?
Essentials of Corporate Finance
Ross, Westerfield, and Jordan
10th Edition and 11th Edition
Determine the stock price given two different rates of return.
Determine the stock price given two different rates of return.
Given the current percentage yield of Treasury bills and a known inflation rate, determine both the approximate and the exact real rates of interest.
What stock price would you consider appropriate based on the earnings and benchmark PE ratio of Flower Co.? What if the benchmark PE were different? Using the benchmark PE to determine the stock prices for Flower Co.
Calculate the expected rate on a Treasury bill, given the real rate and the inflation rate, using the exact method.
Determine the expected inflation rate for the next year, given the total return and the total real return on an investment.
Given a new company with negative earnings, sales, and number of shares outstanding, and a benchmark price-sales ratio, estimate an appropriate stock price. What happens if the benchmark price-sales ratio changes? Determine the stock price for the firm using the price-sales ratio of a benchmark.
A young startup company, Metallica Bearings, Inc., will not pay dividends for the next nine years to fuel growth. In ten years, the company will pay a dividend of $14 per share and increase it by a constant rate. If the required return on the stock is 11.5 percent, what is the current share price? (Your numbers will vary). Determine the current share price for Metallica Bearings Inc given that it won’t be paying dividends in the immediate future and then start paying dividends later on.
Calculate the real return on an asset, given its total return and the inflation rate for that year.
Identify the coupon rate, bid price, and previous day’s asked price for a specific Treasury issue maturing in a certain month and year, given its information in a figure.
Determine whether a specific Treasury bond is a premium or a discount bond, and identify its current yield, yield to maturity, and bid-ask spread in dollars, given its information in a figure.