Question #75

Reading: Reading 20 Discounted Dividend Valuation

PDF File: Reading 20 Discounted Dividend Valuation.pdf

Page: 29

Status: Unattempted

Part of Context Group: Q75-80 First in Group
Shared Context
- What is the present value of Aultman's future investment opportunities as a percentage of the market price? A) 13.9%. B) 8.1%. C) 36.9%. UC Inc. is a high-tech company that currently pays a dividend of $2.00 per share. UC's expected growth rate is 5%. The risk-free rate is 3% and market return is 9%.
Question
What is the beta implied by a market price of $40.38?
Answer Choices:
A. 1.02
B. 1.20
C. 1.16
Explanation
40.38 = 2.10 / (r − 0.05) r = 2.10 / 40.38 + 0.05 = 0.1020 From CAPM: r = 0.03 + b(0.09 − 0.03) 0.1020 = 0.03 + 0.06b b = 1.20
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