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Q3): Answer the following questions: (4 Marks) 1. Calculate the current market value of a stock that is expected to pay dividend of $25 next

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Q3): Answer the following questions: (4 Marks) 1. Calculate the current market value of a stock that is expected to pay dividend of $25 next year (D), dividends are then expected to grow at a constant rate of 2% per year for ever. Given the expected rate of return on the stock is 7%. (2 marks) 2. Micro drive has a preferred stock that pays dividends of $10 per year, if the required rate of return on this preferred stock is 8%; calculate the Present value of the preferred stock? (2 marks) Q 4) Solve the following problem: (5 Marks) 1. You are given that: expected return of the stock Southwest Airlines (SA) is 15.0 %, expected return for General Motors (GM) 10.5%. You put half your money into SA and half into GM. What is your portfolio expected return? (2 marks) 2. Assume the following distribution of Java stock's return; Economy Recession Average Boom Probability 0.10 0.70 0.20 Estimated return 10% 5% 15% Calculate the expected return of the stock. (3 marks

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