Problem 1: An issue of common stock is expected to pay a dividend of $4.0 at the end of the year. Its growth rate is equal to 3%, and the current share price is $40. What is the required rate of return on the stock?
a) between 7% and 10%
b) between 10% and 12%
c) between 12% and 14%
d) between 14% and 17%
Problem 2: An issue of common stock is selling for $57.20. The year end dividend is expected to be $2.32 assuming a constant growth rate of 6%. What is the required rate of return?
Problem 3: What is the approximate yield to maturity for a seven-year bond that pays 11% interest on a $1000 face value annually if the bond sells for $952.