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1. An investor requires a return of 12 percent. A stock sells for $18, it pays a dividend of $1, and the dividends compound annually
1. An investor requires a return of 12 percent. A stock sells for $18, it pays a dividend of $1, and the dividends compound annually at 6 percent. What should the price of the stock be?
2. You are considering a stock A that pays a dividend of $1. The beta coefficient of A is 1.3. The risk free return is 6%, while the market average return is 13%.
a. What is the required return for Stock A?
b. If A is selling for $10 a share, is it a good buy if you expect earnings and dividends to grow at 6%?
3. Lawrence Industries most recent annual dividend was $1.80 per share (D0$1.80), and the firms required return is 11%. Find the market value of Lawrences shares when:
a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity.
b. Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity.
c. Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.
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