FIN 3312
Fall 2014
Quiz 9 Name
10 Points
Use a risk-free rate of 2%
and a market risk premium of 7% for the first 3 problems
1.
A stock with a
beta of 2.5 is expected to pay a dividend of $3.20 next year and grow the
dividend at 7% per year afterward. What
should be the price of this stock?
2.
A stock with a
beta of 1.1 just paid a dividend of $1.50 expected to grow at 6% indefinitely.
a.
What should be
the current price of the stock?
b.
What would you
expect the price of the stock to be in five years?
3.
A stock with a
beta of .6 is priced at $68 and just paid a dividend of $1.80. What growth rate does the market expect for
this stock?
4.
A stock just paid
a dividend of $1.50 expected to grow at 25% per year for the next four years,
then a constant rate of 6%. If you
require a return of 9%, what is the most you would be willing to pay for this
stock?
5.
A stock just paid
a dividend of $2 that is expected to double each year for the next three years,
then grow at a constant rate of 7%. If
you require a return of 11%, what is the most you would be willing to pay for
the stock today?
6.
You find a stock
that doesn’t currently pay a dividend but has announced that they will pay
their first dividend of $7.50 in eight years and grow the dividend at 7%. If you need a 15% return on the stock, how
much would you pay for this stock?
7.
A stock doesn’t
currently pay a dividend, but they have announced that they will pay their
first dividend in five years at $1.40 per share. You believe the dividend will grow at 5%
afterward and you have a required return of 12%. What is the most you would be willing to pay
for this stock?
