1.)Sofie paid a dividend last year of 3.25, which is expected grow at a constant rate of 7%. Sofie has a beta 1.5 and their stock is currently selling for 62. If the market risk premium is 6% and the risk-free rate is 3%. should you purchase Sofies's stock? Show your solution

a. No because it is overvalued 7.55

b. Yes because it is undervalued 18.95

c. No because it is overvalued 18.95

d. Yes because it is undervalued 7.55

2.) The return on an investment stock

a. is always very risky

b. consist of dividend and capital gain yields

c.is subject to risk but is generally non-negative like a savings account

d. has a standard deviation that has historically been small relative to its average values

3) A firm expects to pay dividends at the end of each of the next four years of 2.00, 1.50, 2.50 and 3.50. If growth is then expected to level of at 8% and if you require a 14% rate of return, how much should you be willing to pay for this stock? Show your solution

a. 58.15

b. 22.49

c.67.81

d. 43.97

4) Simplicity is a relatively new firm that appears to be n the road to a great success. The company paid their first dividend yesterday in the amount of 0.15 a share. The company plans to double each annual dividend payment for the next four years. After that time, they are planning on paying a constant dividend of 2.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities in 13.45 percent? Show your solution

a. 14.22

b. 12.32

c. 12.77

d. 13.77