1. If a company just paid a dividend of $2.00 per share, the required rate of return is 9% and the growth rate is 3% then the value of the stock is

2. Yreka Pag Paper Company is a big producer of paper products. Due to its increased use of

recycled materials, analysts expect that the firm's earnings and dividends will grow at 15% per

year for the next 5 years. After that, analysts believe that competitors will catch up so the

growth rate will decline to a historical run rate of 8%. If their most recent dividend (Do) is .35

and the required rate of return is 12%, what is the value of the stock today?

3. You decide to buy a small office building with 1 tenant. The tenant has a lease that calls for

monthly rent payments of $2,500 per month for the next 6 years. After that, the lease expires.

You expect to be able to increase the rent 4% per year for years 7-12. At the end of year 12 you

intent to sell the building for $200,000. Create a table showing the projected cash flows for the

investment, assuming the next rental payment occurs one month from today. Assuming you

need to earn 11% on this investment, what is the maximum price you would be willing to pay for

the building today? (ignore taxes and amortization for this analysis)

3. If a new company is expected to growth exponentially and pay dividends of $1, $2, and $3, for

the first 3 years, respectively. After that time the growth is expected to be at 5% thereafter. The

required rate of return is 10%. You can use the PV and the Gordon Growth model to estimate

the value of the stock.

4. Period

1

2

3

4

5 Cash flows

$

25,000

$

20,000

$

15,000

$

10,000

$

5,000 If your required rate of return is 9% per year, what is the PV of the above cash flows? What is the FV?

5. Calculate the yield to maturity of a 10% coupon bond with 5 years to maturity if the bond sells

for $927.91. The face value of the bond is $1,000. Assume semiannual coupon payments.

6. You start a new job. They give you a variety of investments foryour 401K plan. You have 4 choicesA money market fund that historically has returned 2.5% per yearA long term bond fund with an average annual return of 6%A conservative common stock fund that has earned 8% per year.An aggressive common stock fund that has earned 14% per year.If you want to contribute $5000 per year for the next 20 years, how much will you have with each of the options?

7. You want to buy a house with a $30,000 down payment. The loan amount is $297,000. The annual interest rate is 3 % and the loan is for 360 months. What are your payments?

8.If a new company is expected to growth exponentially and pay dividends of $1, $2, and $3, for the first 3 years, respectively. After that time the growth is expected to be at 5% thereafter. The required rate of return is 10%. You can use the PV and the Gordon Growth model to estimate the value of the stock.

9. Calculate the yield to maturity of a 10% coupon bond with 5 years to maturity if the bond sells for $927.91. The face value of the bond is $1,000.Assume semiannual coupon payments.

10. Find the the value of a preferred stock with a 6% coupon and $100 par value with a required rate of return of 10%.