1. A stocks next dividend is $3.50 and it is expected to grow by 4.5% per year forever. If you as an investor wants to get a 16% return from owning the stock, what is its price? 2. A stock sells for $35. Dividends are expected to grow by 5%, with the next one being $2.50. What is this stocks required return? 3. A stock sells for $60, the next dividend is $1.75, and the required return desired is 15%. What is the dividends growth rate? 4. Three investors, A, B and C, have the same required return and agree on the size of the next dividend, but disagree about what the dividend growth rate is. A has the highest assumed growth rate, C the lowest, and B is in between. Rank each investor according the price they would be willing to pay for the stock, from highest to lowest. 5. Three investors, G, H and I, have different required returns but agree on the size of the next dividend and the dividend growth rate. G is willing to pay the highest price for the stock, H the next highest and I the lowest. Rank each investor according their required returns, from highest to lowest. 6. Three investors, X, Y and Z, have the same required returns and agree on what the4 dividend growth rate is, but disagree on what the next dividend will be. X thinks it will be $2.00, Y $1.75 and Z $2.25. Who is willing to pay the lowest price? The highest? The one in the middle? 7. If I buy a stock today for $50, sell it one year from now for $55 and get paid a dividend of $3.00, what is my: a. Dividend Yield b. Capital Gains Yield c. Total Return 8. Use the =pv function to find the price of these bonds. Bond A: YTM = 10%; Coupon Rate = 10%; Years to maturity is 15. Bond B: YTM = 8%; Coupon Rate = 10%; Years to maturity is 15. Bond C: YTM = 12%; Coupon Rate = 10%; Years to maturity is 15. 9. A bond with 8 years left until maturity has a coupon rate of 9%. Is the price an investor is willing to pay for this bond less than $1,000, $1,000 or more than $1,000 if he believes the yield to maturity is: a. 8% b. 12% c. 9% 10. Three investors, 1, 2 and 3, have different yields to maturity for the same bond. The price 1 puts on the bond is $1,025, the price 2 puts on the bond is $985, and the price 3 puts on the bond is $1,055. Rank, from highest to lowest, the investors yields to maturity. 11. Fill in the blanks to the following statements: a. As the yield to maturity increases/decreases, the price of bond _______/_______. b. When the coupon rate exceeds the yield to maturity, the bond is priced at __________. c. When the coupon rate is less than the yield to maturity, the bond is priced at _______. d. When the coupon rate is more than the yield to maturity, the bond is priced at _______. e. A bond priced at a discount will _____ over time if the yield to maturity never changes. f. A bond priced at a premium will _____ over time if the yield to maturity never changes. Refer to the expected value document when doing problems 12. Try to set up your tables to calculate the expected values, either by hand or using Excel. 12. Economists think the economy next year will be in a boom state, an average state or a bust state. In a boom state, the economy will grow by 9.5%; in the average state, the economy will grow by 4.0%; and in a bust state the economy will decrease by 1.0%. Listed below are three different economists views of the probability for the three states, listed in order for boom, average and bust. What is each economists expected return: d. Economist 1: 25%; 65%; 10% e. Economist 2: 20%; 50%; 30% f. Economist 3: 15%; 70%; 15%