1. Recife Corporation stock has a Beta of 1.39 and it will pay a dividend of $1.50 next year. The following table shows the various possible economic conditions.
State of the economy for the next year__________Probability___________Expected return of the market
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The current riskless rate is 5%. The expected long-term rate of growth of Recife is 8%. Find the value of its common stock. Hint : assume that the predictions of the economy are short-term, perhaps over the next year. Also, assume that the growth of the dividends are long term (perhaps forever).
2. Belem Company stock currently sells at $21 per share. Given the uncertainty in the economy, you have estimated that after one year, the stock price and its dividend will have the following probabilty distribution.
The expected return of the market is 13% and the risk-free rate is 5%. Estimate the Beta of the stock.
3. Goiania Company has the same growth rate as Campinas Corporation. The current stock price of Goiania is $43 per share, and its dividend this year is $3. The riskless rate is 4% and the expected return on the market is 12%. Campinas stock is selling at $75 per share. Its dividend next year will be $4 a share and its Beta is 1.3. Find the Beta of the Goiania stock.