1. McCormick & Company stock has just paid a dividend of $10. Dividends are expected to grow 10 percent per year for the next two years. After that, the company expects a constant growth of 2 percent per year. The required return on the stock is 10 percent. Determine today's stock price.

2. The current price of an American call option with exercise price $50, written on ZYX stock is $4. The current price of one McCormick & Company stock is $56. If you were to sell the stock, how much money would you expect to make?

3. McCormick allows employees to purchase two stocks (Stock A and Stock B) to sustain their retirement portfolio. Suppose that there are many stocks in the market, and that the characteristics of Stocks A and B are given as follows:

Stock Expected return Standard deviation

A 10% 5%

B 15% 10%

Note: Correlation = -1

Suppose it is possible to borrow at the risk-free rate, Rf. What must be the value of the risk-free rate?

(Hint: think about constructing a risk-free portfolio from Stocks A and B).

4. McCormick & Company is considering purchasing a new factory in Largo, Maryland. After you and your team have conducted an analysis of alternative investments and cost of capital, McCormick has decided that a risk premium of 13 percent is appropriate for the investment into a new factory. Adding the risk premium to the current risk-free rate of 7 percent, what is the minimum acceptable rate of return?