Problem 1.
Your uncle is interested in buying a certain stock, which he says is undervalued and should be worth $35 per share. He has asked for your help. The stock's dividend, currently at $1.10, is expected to increase at a rate of 5% per year forever. What should the stock be worth today, assuming a required rate of return of 8.5%?
Problem 2.
You have been following two firms in the health care industry. You expect the dividend payment of both firms to grow at an annual rate of 5%. Dividend payments are currently $1.00. Stock E is priced at $10 today, and Stock F is priced at $11.20 today. What required rates of return were used to price these stocks?