16. (19 points) Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8% Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% this year and 30% the following year, after which growth should return to the 6% industry average. If the last dividend paid (DO) was $2, what is the value per share of your firm's stock 17. (10 points) Suppose you believe that Flotio Company's stock price is going to decline from its current level of 582 sometime during the next 5 months. For 57 you could buy a 5-month put option giving you the right to sell I share at a price of S97 per share. If you bought this option for $5 and Florio's stock price actually dropped to $54, what would your pro-tax net profit be? 18. (20 points) You have a two stock portfolio with S600 in stock A and 5400 in stock B. You believe the following probability distribution exists for your stocks State of Probability Market Rate Market Rate the of State of Return of of Return of Economy Occurring Stock A Stock B Portfolio Return Boom 0.3 -10% Normal 0.5 10% 15% Recession 0.2 20 What are expected rate of return, risk, and CV of stock A