4. A preferred stock from Hecla Mining Co. (HLPRB) pays $3.80 in annual dividend

Question

4. A preferred stock from Hecla Mining Co. (HLPRB) pays $3.80 in annual dividends. If the required return on the preferred stock is 6.80 percent, what is the value of the stock? (Round your answer to 2 decimal places.) Value of stock $__________?

5. Annual dividends of General Electric (GE) grew from $0.72 in 2001 to $1.09 in 2006. What was the annual growth rate? (Round your answer to 2 decimal places.) Annual growth rate ________%

6. Campbell Soup Co. (CPB) paid a $0.792 dividend per share in 2003, which grew to $1.00 in 2006. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required return is 9.6 percent? (Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.) Stock value $_________?

Explanation / Answer

4) Value of stock = Annual dividends/Required return = 3.8/0.068 = $55.88

5)Annual growth rate = [ { P(2005)/P(2001) }^(1/(2005-2001) ] - 1 = 0.1092 = 10.92%

6)Annual growth rate = [ { P(2006)/P(2003) }^(1/(2006-2003) ] - 1 = 0.08083 = 8.08%

g = 8.08% , r = 9.6%

P = D*(1+g)/(r-g) = 1*1.08083/(0.096-0.083) = $71.25

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