Question

announced that all future dividends will be increased by 3.8 percent annually. What is one share of this stock worth to you if you require a 15 percent rate of retum Chef, Inc. just paid its annual dividend of $1.44 a share. The firm recently A. $12.56 B. $12.86 C. $13.35 D. $13.68 E. $14.07 11. Jupiter, Inc. has an issue of preferred stock outstanding that pays a $8.00 dividend every year, in perpetuity. When originally sold, it was issued at $100.00 per share. If this issue currently sells for $146.25 per share, what is the required return? A. 5.47 percent B. 6.89 percent C. 7.70 percent D. 8.23 percent E. 8.98 percent 12. What is the expected return on a security given the following information? Probability of State of Economy State of Economy Rate of Return Recession Normal Boom 0.14 0.75 0.11 18.0% 11.0% -5.0% A. 8.78 percent B. 9.43 percent C. 9.97 percent D. 10.22 percent E. 11.48 percent

Answer 1

10.Value of Stock = Expected Dividend/(Required Return – Growth Rate)

= 1.44(1+0.038)/(15%-3.8%)

= $13.35

i.e. C.

11.Value of preferred Stock = Expected Dividend/Required Rate of Return

146.25 = 8/Required Rate of Return

Required Rate of Return = 5.47%

i.e. A

12.Expected Return = 0.14*18% + 0.75*11% + 0.11*-5%

= 10.22%

i.e. D