1. If a constant dividend growth rate is 4.9%, and a dividend yield is 5.7% for
ID: 2767729 • Letter: 1
Question
1. If a constant dividend growth rate is 4.9%, and a dividend yield is 5.7% for a company, what is the required rate of return on this company stock?
2. FD Corp. pays a constant $12 dividends on tis stock for the next 9 years, then will cease paying dividends forever. If investors require 10% return on this stock, what is the current value of the stock?
3.CCC Corp's preferred stock pays a $3.80 dividend every year, in perpetuity. If the issue currently sells for $78.45, what is the required return?
4. A. EEE Corp. has a new issue of preferred stock it calls 20/20 preferred. The stock will pay $20 dividends but the first dividend will not be paid until 20 years from today. if you require a return of 8% on this stock, how much would you pay today?
B. MBI Corp. will not pay any dividends over the next nine years. It will pay a dividend of $15 per share 10 years from today and increase the dividend by 5 percent per year thereafter. If investors require 14% return on similar stocks, what is the current stock value?
5. The stock price of QRS Inc. is $68. Investors require 11% return on similar stocks and QRS Inc. plans to pay a dividend of $3.85 next year. What growth rate is expected for the stock?
Explanation / Answer
1.
Required rate of return = constant dividend growth rate + dividend yield
Required rate of return = 4.9% + 5.7% = 10.6%
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