1. A stock that currently trades for $40 per share is expected to pay a dividend of $2 per share. The dividend is expected to grow at a constant rate over time. The stock has a beta of 1.2, the risk-free rate is 5% and the market risk premium is 5%. What is the stock's expected price seven years from today? (Hint: find the growth rate using Constant Growth Model, then solve for the FV)
2. A stock is expected to have a dividend per share of $.60 at the end of the year. The dividend is expected to grow at a constant rate of 7% per year, and the stock has a required return of 12%. What is the expected price of the stock five years from today?
3. The last dividend paid by Kitchen Kutlery Corp. was $1. Kitchen's growth rate is expected to be a constant 5% for 2 years, after which dividends are expected to grow at a rate of 10% forever. Klein's required rate of return on equity is 12%. What is the current price of Kitchen's common stock?
4. Wally World Corp. has a stock price of $20 per share. The stock's year-end dividend is expected to be $2 per share. The stock's required rate of return is 15% and the stock's dividend is expected to grow at the same constant rate forever. What is the expected price of the stock seven years from now?
5. Choo Choo Engine Mfg. recently went public through an initial public offering. It is expanding business quickly to take advantage of an otherwise unexploited market. Growth for this company is expected to be 40% for the first 3 years and then is expected to slow down to a constant 15%. The most recent dividend was $.75; in addition, the beta for the company is 1.5, the risk free rate is 8% and the market risk premium is 6%. What is the current price of Choo Choo's stock?
6. Waterlogged Fresh Water Distributors is not expected to pay dividends for the next 4 years. Five years from now, the company anticipates that it will establish a dividend of $1.00 per share. Once the dividend is established, the market expects that the dividend will grow at a constant rate of 5% per year forever. The risk-free rate is 5%, the company's beta is 1.2 and the market risk premium is 5%. The required rate of return on the company's stock is expected to remain constant. What is the current stock price?
7. Happy Haddock Hatcheries expects to pay a $3.00 dividend at the end of the year. The stock's dividend is expected to grow at a rate of 10% per year until three years from now. After this time, the stock's dividend is expected to grow at a constant rate of 5% per year. The stock's required rate of return is 11%. What is the price of the stock today?
8. Truth in Advertising Corp., a marketing firm, has common stock that currently trades at $40 per share. The stock is expected to pay a year-end dividend of $2 per share. The stock's dividend is expected to grow at a constant rate and its required rate of return is 9%. What is the expected price of the stock five years from today?
9. What is the yield to call of a bond that has a YTM of 8.5%, a coupon rate of 6.5% payable semi-annually, it matures in 8 years and is callable in 3 years. The call premium is one year's interest. What is the yield to call?