An oil stock was selling for $51/share yesterday. Today it announces that it has found a large amount of oil on land it owns. The stock price rises by $3.67/share to $54.667 by the end of the day. Suppose that at $51 the stock price reflects that an analyst was assuming D0 = $4, k = .10, and g = .02 and applying a constant growth dividend discount model using assumptions consistent with the $51 stock price. The new price would be consistent with analyst making the following change to an assumption

k is now .075

g now is .025

g is now .01

k is now .12

2. An analyst is valuing 3 stocks: A, B, C. The analyst's assumptions are:

A: D0 = $2/share, k = .09, g = .03

B: D0 = $2.50/share, k = .10, g = .04

C: D0 = $2.75/share, k = .12, g = .02

If you list the stocks in order from lowest to highest by their V0, the correct order is

C B A

A B C

A C B

C A B

3. An analyst forecasts that a stock's one-year expected holding period return (HPR) is 15%. The stock price today is $50/share and the expected dividends for the year are $2.50/share. What stock price does the analyst expect one year from today?

$62

$60.50

$65

$55