5. Keys Inc's stock has a required rate of return of 10%, and it sells for $50 per share. Keys' dividend is expected to grow at a constant rate of 7% per year. What was Keys' last dividend, D₀?

6. Apples most recent dividend was $2.50 per share (D₀ = $2.50). The dividend is expected to grow at a rate of 10 percent per year. The risk-free rate is 5 percent and the market rate of return is 10 percent (r_M). If the companys beta is 1.3, what is the price of the stock today?

7. Your company paid a dividend of $3.00 last year (D₀ =3.0). The growth rate is expected to be 9 percent for first year, 8 percent the second year, then 7 percent for the third year, and then the growth rate is expected to be a constant 6 percent thereafter. The required rate of return on equity (r_s) is 10 percent. What is the companys current stock price (i.e., intrinsic value)?

||___9%______|__8%_______|__7%______|__6%___________

0 1 2 3

*** Formula

P₀ = D₁ / (r g), D₁ = D₀ * (1+g), r = (D₁ /P₀) + g , Vps = Div / r,

In equilibrium, expected return: (D₁ /P₀ ) + g = required return: r_RF + (r_M r_RF) b