Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $60. The stock will pay a dividend at year-end of $2.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.5%.
Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2013 (figures in percent per year) are as follows.
Portfolio Average Annual Average Premium
Rate of Return (Extra return versus Treasury bills)
Treasury bills 3.9
Treasury bonds 5.2 1.3
Common stocks 11.5 7.6
Required:
(a) What is the discount rate if the interest rate is 4.0%? (Enter your answer as a percent rounded to 2 decimal places.)
(b) What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answers (1)
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $60. ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Foreign households and businesses buy from our domestic product and factor markets. From our perspective this describes * A.) exchange rate B.) imports C.) trading bloc D.) import quota E.) exports
Answers (1)
Verbal communication communication includes
Answers (1)
I promise my son that if he goes to europe for six months to see all of the sights and gain some worldly experiences, i will reimburse him for all of his expenses when he returns.
Answers (1)
On August 1, Kim Company accepted a 90-day note receivable as payment for services provided to Hsu Company. The terms of the note were $20,000 face value and 6% interest.
Answers (1)
Nystrand Corporation's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 5.00%, what is the market risk premium?
Answers (1)
New Questions in Business
Which incentives do interest groups engage in to overcome the free rider problem? a. special discounts b. subscription to a magazine c. access to special information on the Internet d. All of these are correct
Answers (1)
Which of the following items is included in the financing activities section of the statement of cash flows? A. Cash effects of transactions involving making and collecting loans. B.
Answers (1)
A rapid build up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other assets. True False
Answers (1)
Amy has recently joined a new research institute. She had initially thought that her job would entail a lot of field work, which would allow her to gain some practical experience, but her manager just gives her a lot of paperwork instead.
Answers (1)
Mrs. watson believes that all immigrants should go back to the country they came from, and she refuses to hire any for her floral business. this is an example of:
Answers (1)