1.Bayou Okra Farms just paid a dividend of $3.15 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price?

2.

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $18 per share dividend 10 years from today and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

3.

Secolo Corporation stock currently sells for $32 per share. The market requires a return of 11.8 percent on the firms stock. If the company maintains a constant 3.9 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

4.

Secolo Corporation stock currently sells for $52 per share. The market requires a return of 8.4 percent on the firms stock. If the company maintains a constant 2.2 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

5.

E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $20 in perpetuity, beginning 9 years from now. If the market requires a return of 3.4 percent on this investment, how much does a share of preferred stock cost today?

6.

Storico Co. just paid a dividend of $1.70 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 11 percent, what will a share of stock sell for today?

7.

Suppose a stock had an initial price of $88 per share, paid a dividend of $2.10 per share during the year, and had an ending share price of $96.

Compute the percentage total return.

8.

Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $88.

What was the dividend yield and the capital gains yield?

9.

Youve observed the following returns on Crash-n-Burn Computers stock over the past five years: 16 percent, 16 percent, 18 percent, 28 percent, and 10 percent. Suppose the average inflation rate over this period was 2.1 percent and the average T-bill rate over the period was 4.2 percent.

a.

What was the average real return on Crash-n-Burns stock?

b.

What was the average nominal risk premium on Crash-n-Burns stock?

10.

You bought one of Great White Shark Repellant Co.s 7.8 percent coupon bonds one year ago for $1,061. These bonds make annual payments and mature 12 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 4.5 percent.

If the inflation rate was 4.4 percent over the past year, what was your total real return on investment?

11.

A stock has had returns of 15 percent, 22 percent, 15 percent, 10 percent, 29 percent, and 5 percent over the last six years.

What are the arithmetic and geometric returns for the stock?

12.

Suppose the average return on an asset is 11.8 percent and the standard deviation is 20.3 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to determine the probability that in any given year you will lose money by investing in this asset.