Question

Problem 1 If a stock's P/E ratio is 12 at a time when earnings are $3 per year, what is the stock's current price? Problem 2 What should be the price for a common stock paying $6.00 annually in dividends if the growth rate is zero and the discount rate is 8%? Problem 3 What price was quoted to an investor who paid $982.50 for a $1,000 par value bond? Problem 4 What is the goal of the firm? Problem 5 If the dividend yield for year one is expected to be 8% based on the current price of $25, what will

Answer 1

Answer:

Explanation:

1)

Stock’s current price:

= P/E Ratio×EPS  = 12×$3  = $36

2)

Price of Stock = Annual Dividend / Discount Rate

Price of Stock = $6.00 / 0.08

Price of Stock = $75.00

3)

Price of Bond = Quoted price * Par Value

$982.50 = Quoted price * $1,000

Quoted price = 98.25