Preferred Stock: Its preferred stock distributes $2 per share every quarter and it is selling for $100 per share.

Common Stock: The CFO of Amazon, Inc. stated that the business will not distribute dividends for the next three years since it is preparing significant investments. The corporation will then distribute $2.5 per share at the end of year three.After year 3, dividends will grow at a rate of 20% for the next two years, 10% for the next two years, and 5% indefinitely after year 7. Analysts agree that, as a result of this new investment, the required rate of return on common stock will be higher for the next five years, at 12 percent, but that after five years, the required rate of return on common stock will fall to a more normal level of 11 percent, where it will remain indefinitely.

a) Calculate the rate of return on preferred stock.

b) Calculate the price of common stock today.

c) Calculate the price of common stock one year later.

d) Calculate the dividend yield, capital gains yield and total return if you buy the common stock today and sell it one year later.

e) If the common stock is selling for $55 one year later then decide if this is a good investment or not.