Question a b, and c please 5. (Stock Valuation) Today's date is Monday, January 3, 2022. The following information pertains to the stocksof two fictitious companies, ABC and DEF on January 3, 2022.ABC Corp.$50$104%0.54%4%7%0Current price on 1/3/2022Most recent dividend on 12/31/2021Expected dividend growth rateBeta1-Year Price ChangeDividend YieldStandard Deviations of Returns(a)(b)DEF Corp.$730N/A (Never Paid)Correlation of ABC and DEF returnsThe long-term Treasury yield is 3%, and the historical average market return is 12%.Calculate the required rate of return of the stock ABC.Assessing from the dividend stream, is ABC undervalued or overvalued? Show your work andexplain.1.922.5%N/A50%(c)Calculate total annual return from the stock. Assessing from the total annual return, is ABCundervalued or overvalued? Show your work and explain.(d)Suppose the Federal Reserve raises the Fed Funds Rate, how would this affect your valuationof ABC? Explain.(e)Your colleague suggests that you should invest only in ABC, and no part in DEF, to minimizethe risks. Is this true or false? Explain verbally.(f)Assessing from the dividend stream, is DEF undervalued or overvalued? Briefly explain.

a) Required return on the stock ABC is the return which investors would expect based on the risk…

(Stock Valuation) Today's date is Monday, January 3, 2022. The following information pertains to the stocks of two fictitious companies, ABC and DEF on January 3, 2022. ABC Corp. Current price on 1/3/2022 Most recent dividend on 12/31/2021 Expected dividend growth rate $50 $10 4% 0.5 4% 4% 7% 0 explain. DEF Corp. $730 N/A (Never Paid) Beta 1-Year Price Change Dividend Yield Standard Deviations of Returns Correlation of ABC and DEF returns The long-term Treasury yield is 3%, and the historical average market return is 12%. (a) Calculate the required rate of return of the stock ABC. (b) Assessing from the dividend stream, is ABC undervalued or overvalued? Show your work and 1.9 22.5% N/A 50% (c) Calculate total annual return from the stock. Assessing from the total annual return, is ABC undervalued or overvalued? Show your work and explain. (d) Suppose the Federal Reserve raises the Fed Funds Rate, how would this affect your valuation of ABC? Explain. (e) Your colleague suggests that you should invest only in ABC, and no part in DEF, to minimize the risks. Is this true or false? Explain verbally. (f) Assessing from the dividend stream, is DEF undervalued or overvalued? Briefly explain.

(Stock Valuation) Today's date is Monday, January 3, 2022. The following information pertains to the stocks of two fictitious companies, ABC and DEF on January 3, 2022. ABC Corp. Current price on 1/3/2022 Most recent dividend on 12/31/2021 Expected dividend growth rate $50 $10 4% 0.5 4% 4% 7% 0 explain. DEF Corp. $730 N/A (Never Paid) Beta 1-Year Price Change Dividend Yield Standard Deviations of Returns Correlation of ABC and DEF returns The long-term Treasury yield is 3%, and the historical average market return is 12%. (a) Calculate the required rate of return of the stock ABC. (b) Assessing from the dividend stream, is ABC undervalued or overvalued? Show your work and 1.9 22.5% N/A 50% (c) Calculate total annual return from the stock. Assessing from the total annual return, is ABC undervalued or overvalued? Show your work and explain. (d) Suppose the Federal Reserve raises the Fed Funds Rate, how would this affect your valuation of ABC? Explain. (e) Your colleague suggests that you should invest only in ABC, and no part in DEF, to minimize the risks. Is this true or false? Explain verbally. (f) Assessing from the dividend stream, is DEF undervalued or overvalued? Briefly explain.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4FPE: The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million...

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