1. As the beginning of the year, you purchased a share of stock for $35. Over the year the dividends paid on the stock were $2.75 per share.
A. Calculate the return if the price of the stock at the end of the year is $30
B. Calculate the return if the price of the stock at the end of the year is $40
2. WGM Inc. is a profitable company that is not paying a dividend on its common stock. James Weber, an analyst for A.G. Edwards believes that WGM will begin paying a $4.00 per share dividend in three years and that the dividend will increase 7% annually thereafter. James believes that the required return for WGM is 12%. According to James’ estimate, what is the current value of WGM’s common stock?
a. $63.78
b. $80.00
c. $71.43
d. $75.00
e. $40.00