1) The common stock of a firm sells for $43.19 a share. The stock is expected to pay $2.28 per share next year (growth already included) when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15% annually and expects to continue doing so. What is the market required rate of return on this stock?

a) 7.59%

b) 7.28%

c) 7.14%

d) 7.43%

2) Which one of the following applies to the dividend discount model?

a) Even if the dividend amount and growth rate remain constant, the value of a stock can vary

b) The dividend growth rate is inversely related to a stock's market price

c) An individual stock has the same value to every investor

d) Zero-growth stocks have no market value

3) Compute the required rate of return using the CAPM and the following information:

Beta = .85

Expected return on the market = 9%

Risk Free Rate = 1.50%

a) 7.50%

b) 7.88%

c) 9%

d) 7.65%