1. Calculate the value of a stock if:
Dividend payout = $4
Your required rate of return= 16%
Growth rate of the dividend= 10%
2. Using the same dividend-growth model as Exercise 1, answer the following questions.
What happens to the stock price when the dividend is increased and everything else stays the same?
What happens to the stock price when the required return is decreased and everything else stays the same?
3. Why is the concept of beta important to stock investors? What should happen to the value of a stock when its beta rises? What should happen to the value of a stock when its beta decreases?