INTEGRATED CASE MUTUAL OF CHICAGO INSURANCE COMPANY STOCK VALUATION Robert Balik and Carol Kiefer are senior vice presidents of the Mutual of Chicago Company. They are codirectors of the company's pension fund management division, with Balik aving responsibility for fixed-income securities (primarily bonds) and Kiefer being responsible for equity investments. A major new client, the California League of Cities, has requested that Mutual of Chicago mayors of the represented cities; and Balik and Kiefer, who will make -23 Insurance present an investment seminar to the the actual presentation, have asked you to help them. To illustrate the common st ock valuation process, Balik and Kiefer have asked you to analyze the Bon Temps Company, an employment agency that supplies word-processor operators and computer programmers to businesses with temporarily heavy workloads. You are to answer the following questions Describe briefly the legal rights and privileges of common stockholders. b. 1. Write a formula that can be used to value any stock, regardless of its dividend pattern. 2. What is a constant growth stock? How are constant growth stocks valued? 3. What are the implications if a company forecasts a constant g that exceeds its r,? Will many stocks have expected g > rs in the short run (i.e., for the next few years)? In the long run (i.e., forever)? c. Assume that Bon Temps has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 3%, and that the required rate of return on the market is 8%, what is Bon Temps's required rate of return