Project #36369 - Managing for Financial Peformance

 

(9 pts)    3.Your stockbroker has called has called to tell you that Microsoft Corporation (MSFT) would be a good buy today at $42.00 per share.  The broker believes that one year from today Microsoft will be selling for $48.00. The expected return on MSFT has a standard deviation of 10 percent. The market risk premium for the  S&P 500 has averaged 5.5 percent.

Required:

•What is the probability that you would earn less than your required rate of return?

•What is the probability that you would earn a return that is not negative?

•Explain why you would or would not buy Microsoft. 

 

(8 pts)  4.James bought a bond when it was issued by Gamma Corporation 14 years ago.  The bond, which has a $1,000 face value and a coupon rate equal to 12 percent, matures in six years.  Interest is paid every six months; the next interest payment is scheduled for six-months from today.  If the yield on similar risk-investments is 8 percent, what is the current market value (price) of the bond?

(9 pts)     5.  Sigma’s preferred stock is selling for $40 per share in the market and pays a $5.00 annual dividend.

 

•What is the current return on the stock?

•If an investor has a required rate of return of 8 percent, what is the value of the stock for that investor?

•Should the investor acquire the stock?

 

(10 pts)  6.Jameson Corporation will pay an annual dividend of $1.35 two years from now.  Analysts expect this dividend to grow at 15% per year thereafter until the sixth year.  After that, growth will level off at 5% per year.  According to the dividend-discount model, what is the value of a share of Jameson’s stock if the firm's equity cost of capital is 10%? Should an investor pay $30 per share for the stock? Explain.

 

 

 

Subject Business
Due By (Pacific Time) 07/26/2014 06:59 am
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