The risk-free rate of return is 7.5%, the expected rate of return on the market portfolio is 17%, and the stock of Xyrong Corporation has a beta coefficient of 2.1. Xyrong pays out 25% of its earnings in dividends, and the latest earnings announced were $9.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 15% per year on all reinvested earnings forever. a. What is the intrinsic value of a share of Xyrong stock

$15.45

Explanation:

For computing the intrinsic value of a share first we have to determine the required rate of return and the growth rate which is shown below:

Required rate of return is

= Risk free rate of return + Beta × (Market rate of return - required rate of return)

= 7.5% + 2.1 × (17% - 7.5%)

= 27.45%

Now the growth rate is

= Risk free rate of return × Return on equity

= 0.75 × 15%

= 11.25%

Now the intrinsic value of a share is  

= Dividend × (1 + growth rate)  ÷ (required rate of return - growth rate

= $2.25 × 1.1125 ÷ (0.2745 - 0.1125)

= $2.50 ÷ 0.162

= $15.45

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi