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Q5 Ch 7 (10%) The current price of a stock is $65.88. If dividends are expected to be $1 per share for the next five
Q5 Ch 7 (10%) The current price of a stock is $65.88. If dividends are expected to be $1 per share for the next five years, and the required return is 10%, then what should the price of the stock be in 5 years when you plan to sell it? If the dividend and required return remain the same, and the stock price is expected to increase by $1 five years from now, does the current stock price also increase by $1? Why or why not? Q6 Ch 7 (15%) Go to the St. Louis Federal Reserve FRED database and find data on the Dow Jones Industrial Average (DJIA). Assume the DJIA is a stock that pays no dividends. Apply the one-period valuation model, using the data from one year prior up to the most current date available, to determine the required return on equity investment. In other words, assume the most recent stock price of DJIA is known one year prior. a. What rate of return would be required in order to "buy" a share of DJIA? b. Suppose that a $100 dividend is paid out instead. How does this change the required rate of return
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