$1.$

What is the growth rate

of IBM

$\text{'}$s dividend

$?$

Use the

$"$

next $12$ months

$"$

relative to the

$"$

trailing $12$ months.

$"$

$2.$

What is

IBM's dividend yield

based on the next twelve months?

Do not round your answer.

Write your answer in percentage points with two decimal places $($

$1\mathrm{.}23$

$\%).$

$3.$

What

is the cost of capital $($r$*$ or r

$-$

star$)$ for IBM implied by the Gordon dividend discount

model and your answers to the first two questions?

Do not round your answer.

Write your answer in percentage points with two decimal places $($

$1\mathrm{.}23$

$\%).$

$4.$

According to the G

ordon model, what will

the price of IBM stock be

a year from now after it

pays the

$$7\mathrm{.}35$

dividend?

$5.$

Cisco is a competitor of IBM

; it has

similar products and customers.

It is reasonable to assume that they

also

have

a

similar cost of capital and

that

their valuations

should use the same discount rate.

Use the

$9\mathrm{.}9\%$

cost of capital for IBM

$,$

your answer to question $3$

$,$ to

calculate a theoretical

price for Cisco.

Show your work for partial credit$6.$Cisco

currently has a

market price of $$50.$

Compare the

theoretical price from question $5$ to

the $$50$ market price. Explain if

your

calculations suggest

the price of

Cisco

should rise or

fall

in the future.

$7.$

IBM suddenly announced th

at it was

holding the dividend fixed at $$7$ per share indefinitely

because of a f

inancial crisis and recession

$.$ What should be the price of IBM stock according

to the Gordon model

and the

$9\mathrm{.}9\%$

cost of capital calculated in question $3?$

Show your work for partial credit.

$8.$

You

buy

a

futures

contract

instead of purchasing Cisco stock at

$$50.$

What is the

one

$-$

year futur

e

s

price,

assuming the

risk

$-$

free interest rate is $6\%?$

Remember to

adjust

the futures price for

the dividend

of $$2\mathrm{.}15.$

$9.$

A year later

$,$ Cisco's market price is

$

$65$

$.$

What is

your

payoff or profit from

buying the futures contract?

$10.$

What is the payoff or profit to the seller of the futures contract?