7

Nick's Enchiladas has preferred stock outstanding that pays a dividend of $4 at the end of each year. The preferred sells for $55 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.

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8

A company currently pays a dividend of $2 per share (D₀ = $2). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 10%, and the market risk premium is 5.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

9

You buy a share of The Ludwig Corporation stock for $19.70. You expect it to pay dividends of $1.00, $1.0750, and $1.1556 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $24.47 at the end of 3 years.

1. Calculate the growth rate in dividends. Round your answer to two decimal places.

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2. Calculate the expected dividend yield. Round your answer to two decimal places.

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3. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return)? Do not round intermediate calculations. Round your answer to two decimal places.

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