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Homework answers / question archive / A firm's common stock currently sells for $50 per share
A firm's common stock currently sells for $50 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 5.5% per year. What's the firm's cost of common stock using DCF approach?
9.9%
9.5%
15.5%
10.5%
Using the information from Question 48, find the stock's capital gain yield.
3.00%
4.19%
4.81%
5.0%
A stock has the following probability distribution: If economy is good (the probability is 0.2), its expected stock return is 25%; if economy is on average (the probability is 0.6), its expected stock return is 8%; if economy is bad (the probability is 0.2), its expected return is -15%. Find the expected rate of return for the stock
5.2%
6.0%
6.8%
8.5%
Using the data from the previous question, find the standard deviation (risk) for the stock
11.06%
12.23%
13.56%
13.90%
Computation of Cost of Common Stock using DCF Approach:
Cost of Common Stock = Dividend for the Next Year/Current Stock Price + Growth Rate
= $2*(1+5.5%)/$50 + 5.5%
= $2.11/$50 + 5.5%
= 0.0422 + 5.5%
Cost of Common Stock = 9.72%
So, the answer is 9.72% which is not given in the options. May be there is some mistake in options.
Computation of Stock Capital Gain Yield:
Capital Gain Yield = (P1-P0)/P0
= (? - $50)/$50
Here, P1 is missing As you have not provided the data for Question 48. So, we can't calculate Stock Capital Gain Yield.
