FIN 534 – Homework Set

On a separate sheet, respond to the following questions: If a mathematical calculation is required, either explain how you arrived at the solution, demonstrate your work, or do both. Utilize the assignment link in the course shell to submit your work. The grade for this homework assignment is 100. Use this data to answer questions 1 through 4: The stock prices and dividends for Goodman Industries and Landry Incorporated, as well as the Market Index, are displayed here. Dividends represent those paid throughout the year, while stock values are shown as of December 31 of each year. Dividends are added back into the market statistics. Market Index for Goodman Industries Landry Incorporated Dividends are included in the year’s stock price dividend. 2013 \$25.88 \$1.73 \$73.13 \$4.50 17495.97 2012 22.13 1.59 78.45 4.35 13178.55 2011 24.75 1.50 73.13 4.13 13019.97 2010 16.13 1.43 85.88 3.75 9651.05 2009 17.06 1.35 90.00 3.38 8403.42 2008 11.44 1.28 83.63 3.00 7058.96 1. Calculate Goodman, Landry, and the Market Index’s annual returns using the provided data, and then determine the stocks’ average yearly returns. Hint: Keep in mind that returns are calculated by adding the dividend to the capital gain or loss after deducting the beginning price from the ending price to obtain the capital gain or loss. The result is then divided by the beginning price. Assume that the index already includes dividends. Additionally, since you lack the 2007 data, you are unable to determine the rate of return for 2008. 2. Determine the returns’ standard deviations for Landry, Goodman, and the Market Index. Use the example standard deviation formula provided in the chapter, which is equivalent to Excel’s STDEV function. 3. Assuming a 5% annual dividend growth rate over the following three years, what dividends do you anticipate for the Goodman Industries stock? Alternatively stated, determine D1, D2, and D3. Recall that D0 equals \$1.50. 4. Assume that the required return on Goodman Industries’ stock is 13%. To discount the dividends determined before, you will apply this needed return rate. What is the highest price you should pay for the stock if you intend to purchase it, hold it for three years, and then sell it for \$27.05?

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