1. The preferred stock of Dragons Inc. pays a $6 dividend. What is the value of the stock if

your required rate of return is 5 percent?

2. Mosser Corporation, Inc. paid a $4 dividend last year. At a constant growth rate of 5

percent, what is the value of the common stock if the investors require a 7 percent rate of

return?

3. DWAC Inc. paid a $5 last year and the stock is currently selling for $80. If investors

require a 12% return on their investment from buying DWAC stock, what growth rate

would DWAC have to provide the investors?

4. What are the limitations of the dividend discount model?

5. A stock currently pays a dividend of $4 for the year. Expected dividend growth is 25%

for the next three years and then growth is expected to revert to 6% thereafter for an

indefinite amount of time. The appropriate required rate of return is 10%. What is this

stock’s intrinsic value?

6. What is the rate of return on an investment that costs $800, earned $60 dividend during the year,

and sold after 1 year for $1,000?

7. What are the expected return and the standard deviation for the CoR Stock?

CoR Stock

Scenario

Probability

of Scenario

Rate of

Return

Worst Case 0.10 −20%

Poor Case 0.20 −10%

Most Likely 0.40 2%

Good Case 0.20 7%

Best Case 0.10 10%

8. Your client decides to invest $3 million in Flama stock and $7 million in Blanca stock. The riskfree rate is 3% and the market risk premium is 7%. The beta of the Flama Stock is 2; and the beta

of the Blanca stock is 3.

a. What are the weights for this portfolio?

b. What is the portfolio beta?

c. What is the required return of the portfolio?