Niagara University Yield to Maturity & Liquidation Value Questions Response
1-Describe the process for calculating a yield to maturity for a bond, and tell what could cause the yield to maturity to change.
2-How can you reconcile the fact that whether an investor favors dividends or capital gains, the investor should accept the dividend discount model as a determination of share value?
3-Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for 4 years, after which it will face more competition and slip into a constant-growth rate of 5%. Its required return is 14% and next year’s dividend is expected to be $5.00.
4-For a firm that expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a return on equity of 20%, and a required return of 15%, show the current stock value and next year’s expected stock value, assuming that growth is to be constant.
5-How can an analyst feel comfortable in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?
6-Geothermal Corp. just announced good news: Its earnings have increased by 20%. Most investors had anticipated an increase of 25%. Will Geothermal’s stock price increase or decrease when the announcement is made?
7-Geothermal Corp. just announced good news: Its earnings have increased by 20%. Most investors had anticipated an increase of 25%. Will Geothermal’s stock price increase or decrease when the announcement is made?
8-Explain why the market value of common stock often differs from its liquidation value or its book value.
9-How do you estimate expected rates of return in the constant-growth dividend discount model? Which of the following observations provides evidence against strong-form market efficiency?
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