1. Calculate the value of a share of stock that is expected to pay $1 dividend at t=1, with dividends expected to grow at a constant rate of 2% per year forever thereafter. Use 14.5% as the discount rate.
a. $10.00
b. $6.90
c. $6.87
d. $8.00
e. $50.00
2. Moonlight Over LaLa Land (MOLL) Co. bonds pay an annual coupon of 9.5%. They have 8 years to maturity and a face value of $1,000. Compute the value of MOLL's bonds if investors' required rate of return is 10%.
a. $1,516.18
b. $1,027.17
c. $973.33
d. $950.00
3. Old Imbalance Footwear, Inc., stock pays $3.20/share each year in dividends, with investors' required return equaling 10%. What is the price of a share of stock?
a. $320
b. $16
c. $32
4. Calculate the value of a 1-year zero-coupon bond (i.e. a bond with a coupon rate equal to 0%) that has a face value of $1000. Use a required rate of return of 25% in your calculation.
a. $800
b. $1250
c. $750