2. (a) Are stock prices affected more by long-term or short-term performance? Explain.

(b) A stock is expected to pay a dividend of RM2 at the end of the year. The required rate of return is rs = 12%. What would the stocks price be if the growth rate were 4%? What would the stocks price be if the growth rate were 0%?

3. If D0 = RM4.00, rs = 9%, and g = 5% for a constant growth stock, what are the stocks expected dividend yield and capital gains yield for the coming year?

4. (a) Explain what is meant by the terms horizon (terminal) date and horizon (terminal) value.

(b)Suppose D0 = RM5.00 and rs = 10%. The expected growth rate from Year 0 to Year 1 (g0 to 1) = 20%, the expected growth rate from Year 1 to Year 2 (g1 to 2) = 10%, and the constant rate beyond Year 2 is gn = 5%. What are the expected dividends for Year 1 and Year 2? What is the expected horizon value price at Year 2? What is the expected P0?

5. (a) A bond that pays interest forever and has no maturity date is a perpetual bond, also called a perpetuity or a consol. In what respect is a perpetual bond similar to (i) a non-growth common stock and (ii) a share of preferred stock?

(b) A preferred stock has an annual dividend of RM5. The required return is 8%. What is the Vps.