FIN 534 homework set#3-LATEST!!!(4 QUESTIONS)





Directions: Answer the following questions on this document.  Explain how you reached the answer
or show your work if a mathematical calculation is needed, or both.  Submit your assignment using
the assignment link in the course shell.  This homework assignment is worth 100 points.
Use the following information for questions 1 through 4:
The Goodman Industries' and Landry Incorporated's stock prices and dividends, along with the Market
Index, are shown below.  Stock prices are reported for December 31 of each year, and dividends reflect 
those paid during the year.  The market data are adjusted to include dividends.
Goodman IndustriesLandry IncorporatedMarket Index
YearStock PriceDividendStock PriceDividendIncludesDivi- dends
2013$25.88$1.73$73.13$4.5017.495.97
201222.131.5978.454.3513.178.55
201124.751.5073.134.1313.019.97
201016.131.4385.883.759.651.05
200917.061.3590.003.388.403.42
200811.441.2883.633.007.058.96
1. Use the data given to calculate the annual returns for Goodman, Landry, and the Market Index, and
then calculate average annual returns for the two stocks and the index.  (Hint: Remember, returns
are calculated by subtracting the beginning price from the ending price to get the capital gain or
loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning
price.  Assume that dividends are already included in the index,  Also, you cannot calculate the 
rate of return for 2008 because you do not have 2007 data.)
2.  Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index.
(Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the
STDEV function in Excel.)
3. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect the
dividend to grow at the rate of 5% per year for the next 3 years?  In other words, calculate 
D1, D2, and D3.  Note that D0 = 
$1.50
4. Assume that Goodman Industries' stock, currently trading at $27.05, has a required return of 13%.
You will use this required return rate to discount dividends.  Find the present value of the 
dividend stream, that is, calculate the PV of D!, D2, and D3, and then sum these PVs.
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