Problem 1

Disney (DIS) will pay a dividend next year of $1.76. After that, you believe that the dividend will grow 4% per year forever (Yes! Mickey Mouse will never die.) You wish to earn a 7% return on your investments in the stock market.

• What is the most you would pay for a share of DIS stock?
• What are DIS shares trading for now?
• What rate of return would you need to settle for if you bought DIS at this price?

Problem #2

Use the CAPM to determine the appropriate discount rate for DIS stock. Look up the 10-year bond YTM rate and Beta on Yahoo Finance, and assume that, on average, investors expect a return of 5% from the stock market. Carry out the result to 2 decimal places: