Assignment

1. Calculate the dividend for year 15 if Do is $2.50 and growth is 6%.

2. Calculate the dividend for each year from D1 through D5 assuming Do is $4 and growth is 7%.

D1 = $

D2 = $

D3 = $

D4 = $

D5 = $

3. Calculate the price of the stock today if Do is $1.00 and growth is 6%. Assume the required rate of return on common stock, rs, is 10%.

4. If you know that the required rate of return, r, on Stock A is 12%, and the dividend yield is 5%, what is the capital gains yield?

5. If P1 is $24.61, and Po is $22.97, what is the capital gains yield? The total return, r, is 15%. What is the dividend yield?

6. If the dividend, D1, is $1.92, and Po is $23.50, what is the dividend yield? ____% If the total rate of return, r, is 14%, what is the capital gains yield?

7. If the expected rate of return, rˆ, is less than the required rate of return, r, should you buy the stock? Yes -- No. Circle your answer. If you already own the stock, should you keep it or sell it? Circle your answer.

8. The price of preferred stock X is $65.00, and the dividend per share is 7% of the par value of $100. Calculate the required rate of return on the preferred stock, rp.

9. If the required rate of return on preferred stock Y with an $8 dividend is 12%, what is the price of the stock?

10. Stock Z will pay a dividend of $3.00, but forecasts no growth in the dividend. The current price of the stock, Po, is $30. Calculate the required rate of return, rs.

11. If the dividend on this no growth stock is $1.15 and rs is 13%, calculate Po.

12. If the growth rate (g) is 6%, the price of the stock today (Po) is $24, the dividend today (Do) is $1.00, what is the dividend yield, the capital gains yield, and the total yield, r, (r = required rate of return or total yield). 6 pts. Dividend Yield ___________% Capital Gains Yield _____________% Total Yield (required rate of return) ______________%

13. What is the expected price of Stock C four years from now if growth (g) is 6%, and the investors are requiring 11%, (the required rate of return, r, is 11%), and the current dividend, Do, is $1.75. Calculate expected Pˆ4.

14. Suppose the dividend today, Do, is $2.50, and the growth rate (g) is expected to be 25% for the next three years, followed by a normal growth rate (g) of 6% thereafter. Assume the investors require 13%, rs. Calculate the value of the stock today, Po. This is the supernormal growth problem.