Question

1. The last dividend paid by Corporation was $1.00. Corporation’s growth rate is expected to be 5 percent forever. Corporation’s required rate of return on equity is 12 percent. What is the current price of Corporation’s common stock?

2.  Corporation has paid a $1.00 dividend every year on its preferred stock since its inception in 1967. Investors demand a 7 percent required return on the stock. What should Corporation’s stock trade for in the market?

3.  The last dividend paid by Corporation was $1.00. Corporation’s growth rate is expected to be a constant 5 percent for two years, after which dividends are expected to grow at a rate of 10 percent forever. Corporation’s required rate of return on equity is 12 percent. What is the current price of Corporation’s common stock using the non-constant growth model?

4.  Corporation just paid a dividend of $2.75 per share. The company will have a growth rate of 5%, 10%, 15%, and 20% for each of the next four years, respectively. After that, the company will keep a constant growth rate of 5 percent forever. If the required return on Corporation’s stock is 13 percent, what will a share of stock sell for today?

5. What is common stock and what is preferred stock? What are the similarities and differences between the two securities? Explain fully.

Answer 1