1. What is the rate of return on a preferred stock that has a par value of $50, a market price of $46.50, and a dividend of $4.10?
a. 8.20%
b. 11.34%
c. 8.82%
d. 12.20%
2. George Franks can buy shares of Ace Rocket Launcher (ARL) for $45.00. George expects dividends to be $3.00 in one year and $5.00 in two years, and he expects to sell the stock for $58.00 in two years. Should George buy any shares of ARL? George feels that 18 percent is the appropriate required rate of return.
3. The Rich Company has a dividend growth rate of 14 percent, a current share price of $56.00, and a current dividend of $1.50. What is the required rate of return for Rich Company shares?
4. Because of a lucky breakthrough, Philadelphia Pharmaceutical’s current dividend per share of $2.00 is expected to grow at a very high 32 percent per year for the next three years and then to grow at a more normal 6 percent per year. What is the value of a Philadelphia share if the investors’ expected return is 20 percent?