1. Which of the following is true?
If the risk level of a stock decreases and everything else remains the same, the intrinsic value will decrease
If the risk level of a stock decreases and everything else remains the same, the intrinsic value will increase
If the rate of growth of dividends increases and everything else remains constant, the intrinsic value of the stock does not change
Different classes of shares are always different in terms both dividend policies and voting rights.
Preferred stock can be modeled as a stock paying always the same dividend. Assuming this is true, then the intrinsic value of preferred stock can be estimated using Gordon's growth model.
2. A stock is expected to pay a $3.00 dividend next period. Dividends are expected to grow at a constant rate of 6.4%. If the required return of the stock is 17.5%, what will the intrinsic value of the stock be in 5 periods, just after the 5th dividend is paid?