Q3) Suppose you are considering buying a stock. You expect the stock to pay a dividend of $2 one year from today and that the dividend will grow 3% each year after that. Using the CAPM, you estimate your required return at 8% to compensate you for the risk of this stocks cash flows. What is the maximum price you are willing to pay for a share of the stock? LO3

$40

$30

$25

$45

Q4 Suppose you are considering buying a stock. You expect the stock to pay a dividend of $2 one year from today, $2.25 two years from today, and then dividend will grow 2% each year after that. Using the CAPM, you estimate your required return at 10% to compensate you for the risk of this stocks cash flows. What is the maximum price you are willing to pay for a share of the stock? LO3

$27.39

$42.41

$32.67

$47.39

Q7 Suppose you are considering buying a stock. The stock is currently trading for $15. You expect the price in one year to be $16 and it will pay a dividend of $0.75. You estimate the stocks beta at 2, the risk-free rate at 1.5%, and the expected return on the market at 7.5%. According to the CAPM, should you consider purchasing this stock? LO3

The intrinsic value is $14.76. The current price is $15. You should not consider buying the stock.

The intrinsic value is $15. The current price should be $14.76. You should consider buying the stock.

The intrinsic value is $14.76. The current price $15. You should consider buying the stock.

The intrinsic value is $13.72. The current price $55. You should not consider buying the stock.