1. A stock had returns of 4 percent, 11 percent, 16 percent, -6 percent, and -2 percent for the past five years. Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?
A) Greater than 1 percent but less than 2.5 percent.
B) Greater than 2.5 percent but less than 16 percent.
C) Greater than .5 percent but less than 1 percent.
D) Less than .5 percent.
E) Greater than 16.0 percent.
2. The yield on 10 year Singapore Treasury bonds is 3% and the market return is 5%. You are studying UniSUSS stock which has a beta of 1.2. UniSUSS has just paid a dividend of 1.20 and expects dividends to grow at a rate of 4% per annum for the next 5 years, and to slow down to 2% growth per annum thereafter.
(a) Calculate the discount rate you should apply to UniSUSS stock.
(b) What is the intrinsic value of UniSUSS stock?
(c) If dividends stop growing after the first 5 years, what is the intrinsic value of UniSUSS stock?