Stock Valuation

Assignment Requirements

 

Use Chapter 8.

1. What would an investor pay for a stock, if his required rate of return is 12%, the stock next year’s dividend is $3/share, and the dividend is expected to grow at 4%?

 

2. Better Plastics is a mature manufacturing firm. The company just paid a $4 annual dividend, but management expects to reduce the payout by 3 percent per year, indefinitely. If you require a 12 percent return on this stock, what will you pay for a share today?

 

3. What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?

 

4. The stock price of Samuelson, Inc. is $71. Investors require a 15 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company’s stock price?

 

5. The data you found for GHK Co.’s stock in the paper (an imaginary company).

YTD % change	12-week		Stock	Div	Yld %	PE	Vol 100s	Close	Net change
	Hi	Lo
–          2.7	40.125	15.375	GHK	0.85		10	421	21.75	0.625

 

1. Fill in the table.
2. What is the company’s earnings/share?
3. What was the stock’s closing price the day before?
4. If 20 trading days have passed since the start of the year, what was the price of the stock on the first trading day?
5. What did you earn in dividends?

1. You own 1,250 shares of stock X. You read in the newspaper that the dividend for the stock is 3.88.

b. The closing price of a stock is 90.25 and the dividend is 3.50. What is the yield of the stock?

c. The closing price of the stock is $66.40 and the net earnings per share are $2.50. What is the stock’s P-E ratio?

 

8. What is the expected constant growth rate of dividends for a stock currently priced at $50, that just paid a dividend of $4, and has a required return of 6%?

 

9. What is the difference between a specialist, a floor broker and a floor trader on the NYSE Euronext exchange?

 

1. Find the website of a stock exchange in the country of your choice. Copy its brief history on the Bulletin Board. (Each must find a different exchange.) Give important information, like when was it established, how many stock are traded on the exchange. You can use this link: http://www.tdd.lt/slnews/Stock_Exchanges/Stock.Exchanges.html

 

1. Go to The Wall Street Journal’s homepage. Pick any one of the stocks from the link (http://online.wsj.com/mdc/public/page/2_3022-scansmall.html?mod=topnav_2_3051), Then, go to Yahoo’s Finance page, type in the stock symbol. Click. In the middle of the page is the category ‘company profile’, and click on it. What did you find out about the company, what business is it in? Would you invest in this company, why yes, why not? Post on the bulletin board (including the name of a company, its ticker symbol). What is a small cap stock?

.

 

2. Suppose a company has a preferred stock issue and a common stock issue. Both have just paid a $2 dividend. Which do you think will have a higher price, a share of the preferred or a share of

the common?

 

To satisfy your own curiosity: Read

From http://usequities.nyx.com/markets/new-york-stock-exchange-history

 

On May 17, 1792, twenty-four stockbrokers gathered outside 68 Wall Street under a buttonwood tree to sign an agreement that would establish the rules for buying and selling bonds and shares of companies. The Buttonwood Agreement, as it is known, is so named because the tree served as the regular meeting place for these pioneers of Wall Street. The signers of the Buttonwood Agreement drafted their first constitution on March 8th, 1817, and named their nascent organization the New York Stock & Exchange Board.

In 1863, this name was shortened to its modern form, the New York Stock Exchange, which became known as the NYSE, one of the best-known financial industry brands in the world. Membership on the NYSE has been held as a valuable property since 1868. Until the NYSE went both electronic and public in April 2006, the exchange was a membership-only organization. You could only join the NYSE by purchasing existing seats, which were limited to a total of 1,366.

 

At what price did the last seat sold and when? Extra credit point to the first correct poster. You must post source.

 

 

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