Business Finance “Stocks” Name___________________ 80 points Score__________
MUST SHOW WORK
1.
Calculate the dividend for year 15 if D
o
is $2.50 and growth is 6%.
D
15 =
$
__________
(
3 pts.
)
2.
Calculate the dividend for each year from D
1
throug
h D
5
assuming D
o
is $4 and
growth is 7%.
(
10
pts.
)
D
1 =
$
D
2 =
$
D
3 =
$
D
4 =
$
D
5 =
$
3.
Calculate the price of the stock today if D
o
is $1.00 and growth is 6%. Assume the
required rate of return on common stock, r
s
, is 10%.
$_______(
3 pts.
)
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?
_____%
(
2 pts.
)
5.
If P
1
is $24.61, and P
o
is $22.97, what is the capital gains yield? ______%
(
2
pts.
)
T
he to
tal return, r, is 1
5%. What is the dividend yield?
______%
(
2
pts.)
6.
If the dividend, D
1
, is $1.92, and P
o
is $23.50, what is the dividend yield? ____%
If the
total
rate of
return, r, is 14%, what is the capital gains yield? _____%
(2 pts. each)
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.
2
pt
s
.
If you already own the stock, should you keep it or sell it? Circle your answer.
2
pt
s
.
8.
The p
rice 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, r
p
.
_____%
4 pts.
9.
If the required rate of return on preferred stock Y with an $8 divide
nd is 12%, what is
the price of the stock?
V
p
= %___________
4 pts.
10.
Stock Z will pay a dividend of $3.00, but forecasts no growth in the dividend. The
current price of the stock, P
o
, is $30. Calculate the required rate of return, r
s
.
4 pts.
11.
If the dividend
on this no growth stock
is $1.15
and r
s
is 13%, calculate P
o.
4 pts.
12.
If the growth rate (g) is 6%, the price of the stock today (P
o
) is $24, the dividend
today
(D
o
)
is $1.00, what is the dividend yield, the capital g
ains 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
year
s from now if growth (g) is 6%, an
d
the investors are requiring 11
%, (the r
equired rate of return, r, is 11
%), and the current
dividend, D
o
, is $1.75.
Calculate expected Pˆ
4.
5
pts.
14. Suppose the dividend today, D
o
, 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%, r
s
. Calculate the value of the stock today, P
o
.
This is the supernormal growth problem.
2
5 pts