Problem 1: (SS) How to form a stock market index? At the end of 2016, we want to create a brand new index to measure the performance of country X's stock market. Assume there are currently two public companies that operate in country X: Company A and Company B In the year 2016, the four companies' stock prices and share outstanding were as follows Company Name Company A Company Share Outstandin 1000 1000 Market Capitalization Price 10 20 Total let's assume that in 2017 the stock prices were Company Name Company A Company Share Outstandin 1000 1000 Price Market Capitalization Total a) What is the equally-weighted index value for 2016? What is the equally-weighted index value for 2017? b) What is the value-weighted index value for 2016? What is the value-weighted index value for 2017? Problem 2: (SS) You are considering acquiring a common share of FIN340.01 Corporation that you would like to hold for one year. You expect to receive both $1.25 in dividends and S35 from the sale of the share at the end of the year. What is the maximum price you would pay for a share today if you wanted to earn a 12% return? Ans: S32.37 Problem 3: (SS) Each of two stocks, A and B, are expected to pay a dividend of $7 in the upcoming year. The expected growth rate of dividends is 6% per year indefinitely for both stocks. You require a return of 10% on stock A and a return of 12% on stock B. Using the constant growth model (Gordon Growth Model), compare the intrinsic values of stock A and B Problem 4: (SSS) FIN340 Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2 of S3.00, and a dividend in year 3 of $4.00. After year 3, dividends are expected to grow at the constant rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage dividend model, what is the intrinsic value of the stock? Ans: S67.95