1) The common stock of a firm sells for $43.19 a share. The stock is expected to pay $2.28 per share next year (growth already included) when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15% annually and expects to continue doing so. What is the market required rate of return on this stock?
a) 7.59%
b) 7.28%
c) 7.14%
d) 7.43%
2) Which one of the following applies to the dividend discount model?
a) Even if the dividend amount and growth rate remain constant, the value of a stock can vary
b) The dividend growth rate is inversely related to a stock's market price
c) An individual stock has the same value to every investor
d) Zero-growth stocks have no market value
3) Compute the required rate of return using the CAPM and the following information:
Beta = .85
Expected return on the market = 9%
Risk Free Rate = 1.50%
a) 7.50%
b) 7.88%
c) 9%
d) 7.65%