1. Consider a stock which just paid a dividend of $2.50. If the firm expects earnings and dividends to grow at a rate of 4%, what price would you pay for the stock if you require a rate of return equal to 9%?
2. What price would an investor requiring a 7% return pay for a stock which just declared a dividend of $5.00 if the expected dividend and earnings growth rate was estimated at 0%?
3. If a stock is currently priced at $40 per share and the firm’s current earnings per share is $5, what price would you pay if you forecast new earnings per share to be $6.00.