1. AshKetchum Co. just paid a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent (i.e. 20%, 15%, 10%,and then 5%), after which the company will keep a constant growth rate, forever. a. If the required return on AshKetchum stock is 13 percent, what will a share of stock sell for today? b. How about at the end of fifth year?

1. Given the following information, what is the standard deviation of a portfolio that is invested 40 percent in stock A, 25 percent in stock B, and 35 percent in stock C?

State of Probability of Rate of Return if State Occurs

Economy State of Economy Stock A Stock B Stock C

Boom 0.15 0.09 0.14 0.26

Normal 0.85 0.16 0.10 0.12