Common and Preferred Stocks Valuation Exercises:

Question $1.$ Boston Company has just paid dividends of $$2\mathrm{.}5$ per share, which the company projects will grow at a constant rate of $5$ percent forever. If Boston Company's shareholders require $15$ percent rate of return, what is the price of its common stock?

Question $2.$ You plan to buy Bulldog Colporation' stock. You predict that Bulldog will pay dividends of $$2$ in year $1$ and $$3$ in ye ar $2$ spectively. You are also confident that you can sell the stock for $$100$ per share at the end of year $2.$ If you require a $10$ percent return on the stock, what is its fair price from your perspective?

Question $3.$ Company BMI will experience a supernormal growth rate of $20\%$ in the next two years. The growth rate will then level off to $5\%$ from year $3$ and beyond. The most recent dividend payment was $$2\mathrm{.}00$ and the required rate of return for BMI stock is $10\%.$ What is the intrinsic value of the BMI stock?

Question $4.$ Beverly Company will pay a dividend of $$2$ per share next year, which will continue to grow at a constant rate forever. Current stock price is $$20$ and the required rate of return is $15$ percent. What is the constant dividend growth rate?

Question $5.$ BFI Corporation has a preferred stock issue outstanding, which carries a par value of $$100$ and a fixed dividend rate of $10$ percent. If the market requires a rate of return of $10$ percent to hold this preferred stock, what is its market price today?