Homework Answers
1.A.$34.45, sell overpriced.
price = last dividend *(1+growth rate) / (required rate of return - constant rate)
=>3.25*(1.06) / (0.16-0.06)
=>$34.45.
since it is overpriced at 36.34 one can gain by selling.
2.value of the stock = dividend / discount rate
here,
discount rate = 8.5% /4
=>2.125%.
=>value of the stock = 1.52/0.02125
=>$71.53.
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