1.The price of Goldman Sachs stock is currently $142/share and the price expected in one year is $160/share. If you expect Goldman to pay a dividend of $1.40/share in one year, should you buy the stock if your required return (opportunity cost of capital) is 8%? Explain your answer. (Hint: Calculate the expected return).

2.Pepsicos dividends are currently $1.75/share, and they are expected to grow at a rate of 5% per year. If the required return is 8%, would should the price per share be? (Hint: Use the Gordon growth model).

3.Suppose you like the newest Samsung Galaxy phone and you think it will be a big seller. You also predict that these sales will generate huge profits for the company. Should you buy Samsung stock?

4.Suppose a bank knows that one-third of potential borrowers are riskless, 1/3 are highly risky, and the last 1/3 fall in between. It decides that the riskless interest rate is 2%, the riskiest is 6%, and middling borrowers will pay 4%. Because the economy is engulfed in financial crisis at present, the bank has lost all of its ability to screen the riskiness of its potential borrowers and is thus facing the lemons problem. What interest rate should the bank charge all of its loan applicants? How will the risky borrowers respond? What about the riskless? In light of this, would you consider the credit market to be working well? Explain.