Stock and bond pricing. Group work in class – Post Answers on BS
1. A stock sells for $2000, pays $30 in dividends and grows at 2% annually.
a. What is the interest rate?
b. If the Risk free rate is 2%, what is the risk premium?
2. Compute the price of a share of stock that pays a dividend of $2 per year, assuming that you will sell it for $30 after two years and you require 12% return.
3. A stock paid $4 dividends last year, the dividends grow by 10% annually. What would you be willing to pay for it today, assuming that you will hold it forever and you require 15% return?
4. If a stock $pays 20 in dividends that grow at 2.5% annually and the interest rate is 4.5%, what would you be willing to pay for the stock? Is that your maximum or minimum?
5. You expect a stock to sell for $100 after two years and pay $20 in dividends each year. What would you pay for it today if the interest rate is 4%?
6. Compute the price of a share of stock that pays a dividend of $2 per year, assuming that you will sell it for $30 after two years and you require 12% return.
7. A stock paid $4 dividends last year, the dividends grow by 10% annually. What would you be willing to pay for it today? assuming that you will hold it forever, Interest rate is12%