What is the expected return on investment for stock B?
Stock A has a required return of 10% and a price of $25, and its dividend is expected to grow at a constant rate of 7% per year. Stock B has a required return of 12% and a price of $40, and its dividend is expected to grow at a constant rate of 9% per year.
What is the difference between stock a's and stock B's expected dividends?
Stock A's dividend is expected to grow at a constant rate of 10% per year, while Stock B's dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is CORRECT? A. Stock A's expected dividend at t = 1 is only half that of Stock B. B. Stock A has a higher dividend yield than Stock B.
Which data do stocks a and B have?
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? These two stocks should have the same price. These two stocks must have the same dividend yield.
What is the price of a stock based on?
The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. E. The dividend discount model for constant growth firms cannot be used for a zero growth stock, where the dividend is expected to remain constant over time. c
How do you know if a stock price will increase or decrease?
If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy.
How does a stock price change?
When the demand for a stock exceeds supply, there will be a rise in the price of a stock. The more drastic the demand-supply gap, the higher the price. For example, when many traders are buying stock X, stock X's price per share will increase and the same is true vice-versa.
Why do stock prices change every second?
Stock prices change every second according to market activity. Buyers and sellers cause prices to change and therefore prices change as a result of supply and demand. And these fluctuations, supply, and demand decide between its buyers and sellers how much each share is worth.
What determines the price of a stock?
After a company goes public, and its shares start trading on a stock exchange, its share price is determined by supply and demand for its shares in the market. If there is a high demand for its shares due to favorable factors, the price will increase.
What does a high stock price mean?
In general, a high stock price indicates good financial health and a low stock price indicates poor overall financial health. As a business grows and goes through hard times, its stock price usually rises and falls, respectively.
What do you mean by current price?
Current prices are those indicated at a given moment in time, and said to be in nominal value. Constant prices are in real value, i.e. corrected for changes in prices in relation to a base line or reference datum.
How do you know if a stock will go up?
We want to know if, from the current price levels, a stock will go up or down. The best indicator of this is stock's fair price. When fair price of a stock is below its current price, the stock has good possibility to go up in times to come.
How do stock prices change after hours?
Typically, price changes in the after-hours market have the same effect on a stock that changes in the regular market do: A $1 increase in the after-hours market is the same as a $1 increase in the regular market.
How often do stock prices change?
Therefore, the price changes whenever a new transaction occurs, unless that transaction is for the same price as the previous one. Major stocks, such as Apple, trade millions of times every day, and the stock price could change with each of those transactions.
How are stock prices determined in real time?
Stock prices are largely determined by the forces of demand and supply. Demand is the amount of shares that people want to purchase while supply is the amount of shares that people want to sell.
Which factors can affect a stock's price?
Factors that can affect stock pricesnews releases on earnings and profits, and future estimated earnings.announcement of dividends.introduction of a new product or a product recall.securing a new large contract.employee layoffs.anticipated takeover or merger.a change of management.accounting errors or scandals.
How are stock prices determined quizlet?
how are stock prices determined? price = present value of the payments to be received from owning it. the expected return necessary to compensate for the risk of investing in stocks. Firms call it the equity cost of capital - rate they need to pay to attract investors.
What causes a stock price to drop?
When the supply of the available stock for sale is higher than investor demand to purchase the stock, it leads to a decrease in stock price. The stock price will stay low until it reaches a low enough price to induce investors to purchase the excess supply.
What are some factors that can affect the price of a stock?
Factors that can affect stock pricesnews releases on earnings and profits, and future estimated earnings.announcement of dividends.introduction of a new product or a product recall.securing a new large contract.employee layoffs.anticipated takeover or merger.a change of management.accounting errors or scandals.
What happens if a stock has a lower dividend yield than a stock B?
If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's. E. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.
What is preferred stock?
a. Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock , and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.