I am looking at a stock whose price is $45.00. I want a return of at least 8% and I expect to hold the stock for 5 years and expect the stock to reach $60. The stocks beta is 1.25. Calculate the stocks PV. Should I buy the stock?
Is needed calculate the present value in excel, PV=(rate,nper,pmt,fv) in this case the final result is $40.83
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Find the beta for the following stocks: IBM, Apple, WalMart, Microsoft, and Dell.
2. I am looking at a stock whose price is $45.00. I want a return of at least 8% and I expect to hold the stock for 5 years and expect the stock to reach $60. The stocks beta is 1.25. Calculate the stocks PV. Should I buy the stock?
3. If the stock is also pays a dividend of 2.00 per year. Should I buy it?
4. A stock is selling for $35.00. The stock’s value is expected to grow by 10% per year. It has a beta of 1.0
a) I expect to sell the stock in 5 years; what will it be worth then?.
b) I want a return of 9% -- Should I buy the stock?
c) The Stocks beta increases to 1.2 should I still buy the stock?
e) The stock pays a dividend of $1.00 per year. Should I buy it now?
Your answers must be sent as an Excel File posted to Blackboard. I must see the formulas of how you calculated
To calculate the present value (PV) of the stock, you'll need to use the stock's expected future value, the holding period, the expected return, and the stock's beta.
First, let's calculate the expected future value (FV) of the stock after 5 years. Given that the current price is $45.00 and you expect the stock price to reach $60.00, the increase in value over 5 years would be $60.00 - $45.00 = $15.00.
Next, calculate the expected return (R) using the formula:
Expected Return = Risk-Free Rate + (Beta * Market Risk Premium)
Assuming the risk-free rate is 3% and the market risk premium is 7%, the expected return would be:
Expected Return = 3% + (1.25 * 7%) = 3% + 8.75% = 11.75%
Now, use the formula for the present value of an investment:
PV = FV / (1 + R)^n
where PV is the present value, FV is the future value, R is the expected return, and n is the holding period.
Plugging in the values, we get:
PV = $15.00 / (1 + 11.75%)^5
Now, calculate PV:
PV = $15.00 / (1 + 0.1175)^5
PV = $15.00 / (1.1175)^5
PV ≈ $7.41
Therefore, the present value of the stock is approximately $7.41.
To determine whether to buy the stock, compare its current price ($45.00) to its calculated present value ($7.41). If the present value is higher than the current price, you may consider buying the stock. However, if the present value is lower than the current price, it suggests the stock is overpriced, and you may want to reconsider buying it.