A firm has just paid an annual dividend of $3 per share (D0) of common stock. If

Question

A firm has just paid an annual dividend of $3 per share (D0) of common stock. If the expected longrun growth rate for this firm is 10 percent, and if you require an annual rate of return of 16 percent, then how much should you be willing to pay for a share of this stock?

If you pay $1,000 for the privilege of receiving $199.25 for each of the next ten years, what interest rate are you earning on your money?

What would you pay for a stock which just paid a $5 dividend (D0) if the expected dividend and earning growth rate is 4% and you require a 16% return on your investment?

The market-to-book ratio of a firm compares the price per share of stock to the:

Explanation / Answer

Expected Dividend = 3*1.1 =3.3

g= 10%

required rate of return =16%

= 3.3/(.16 -.1)

=55

b) -1000 = 199.25/(1+r) ........................+199.25/(1+r)^10

r= 15%

c) Expected Dividemd = 5*1.04 = 5.20

G = 4%

r =16%

Stock = 43.33

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