1. A fast-growing firm recently paid a dividend of $0.40 per share. The dividend is expected to increase at a 20 percent rate for the next three years. Afterwards, a more stable 10 percent growth rate can be assumed. If an 11 percent discount rate is appropriate for this stock, what is its value today?

2. Ecolap Inc. (ECL) recently paid a $0.48 dividend. The dividend is expected to grow at a 13.50 percent rate. The current stock price is $50.92. What is the return shareholders are expecting?

3. Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 9.5 percent. LTD’s recent dividend was $0.80. What is the value of Limited Brands stock when the required return is 11.5 percent?

4. Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 11 percent. Safeco’s recent dividend was $1.50. What is the value of Safeco stock when the required return is 13 percent?

5. A firm is expected to pay a dividend of $3.95 next year and $4.25 the following year. Financial analysts believe the stock will be at their price target of $120 in two years. Compute the value of this stock with a required return of 13.9 percent

6. A firm is expected to pay a dividend of $1.45 next year and $1.60 the following year. Financial analysts believe the stock will be at their price target of $45 in two years. Compute the value of this stock with a required return of 11.4 percent.

7. A corporate bond with a 7.2 percent coupon has 18 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.9 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 9.2 percent. What will be the change in the bond’s price in dollars? (Assume interest payments are semiannual.)(Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Change in bond price                              $

What will be the change in the percentage? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Change in bond percent                           %

8. A 4.60 percent coupon bond with 14 years left to maturity is offered for sale at $943.71. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

9. A 6.25 percent coupon bond with 19 years left to maturity is offered for sale at $1,095.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

10. Calculate the price of a 5.3 percent coupon bond with 15 years left to maturity and a market interest rate of 4.8 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

  Bond price                                           $

Is this a discount or premium bond?

Premium bond

Discount bond