Hi, I have a few questions I know the answers to but don\'t know how to go about

Question

Hi, I have a few questions I know the answers to but don't know how to go about getting them. Could you please show work (and formulas) used to solve them? If you can't do them all at least do as many as you can! Thanks!

1. Upper Crust Bakers just paid an annual dividend of $2.80 a share and is expected to increase that amount by 4% per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 11.50% at the time of your purchase? A: $40.38

2. Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2% annually. What is the market rate of return if the stock is currently selling for $38.90 a share? A: $7.95%

3. Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15% per year for the next 4 years and then decreasing the growth rate to 3.5% per year. The company just paid its annual dividend in the amount of $0.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5%? A: $2.49

4.Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15% per year for the next 4 years and then decreasing the growth rate to 3.5% per year. The company just paid its annual dividend in the amount of $0.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5%? A: $18.24

Explanation / Answer

As per the rule, I can answer first question only.

We have:

Do = 2.80

Ke = 11.50%

G= 4%

We need to compute P1

P1= D2/(Ke- g)

P1=Do(1+g)^2/( Ke-g)

     = 2.8 x(1+0.04)^2/ (0.115-0.04)

     =3.02848/0.075

     = 40.38

Hence the price next year would be 40.38.

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