1. Preferred stock has a dividend of $12 per year. The required return is 6%. What should be the price per share?

2. Hurricane Corporation expects to grow its dividend by 5% per year. The current dividend is $2 per share. The required return is 8%.

A. What is the estimated value of a share of common stock?

B. If price is $40 and dividends were $1.50 per share but expected to grow at 4% per year, what would be the required rate of return?

3. Compute the expected return for the following investment

State of nature Probability Return

Boom 25% 20%

Average 60% 8%

Recession 15% 0%

4. The following are the expected returns on a portfolio of investments. What is the expected rate of return on the portfolio?

Investment # of shares Price per share Expected return

A. 2000 $20 10%

B. 3000 $10 15%

C. 1000 $15 8%

5. You take out a $200,000 mortgage for 30 years at 6%.

What is your monthly payment?

What is the principle and interest on the first payment?

What is the principle and interest on the twelfth payment?

How much interest will you pay over the 20 years?

6. You bought a house 8 years ago with a $250,000 mortgage. It was a 15 year loan with monthly payments which will pay off the loan when you make the last payment. The interest rate was 6%. What are your monthly payment and your current loan balance? How much interest will you pay in the upcoming year?