Stock and bond pricing. Group work in class Post Answers on BS

1.

A stock sells for $2000, pays $30 in dividends and grows at 2% annually.

a.

What is the interest rate?

b.

If the Risk free rate is 2%, what is the risk premium?

2.

Compute the price of a share of stock that pays a dividend of $2 per year,

assuming that you will sell it for $30 after two years and you require 12%

return.

3.

A stock paid $4 dividends last year, the dividends grow by 10% annually.

What would you be willing to pay for it today, assuming that you will hold it

forever and you require 15% return?

4.

If a stock $pays 20 in dividends that grow at 2.5% annually and the interest

rate is 4.5%, what would you be willing to pay for the stock? Is that your

maximum or minimum?

5.

You expect a stock to sell for $100 after two years and pay $20 in dividends

each year. What would you pay for it today if the interest rate is 4%?

6.

Compute the price of a share of stock that pays a dividend of $2 per year,

assuming that you will sell it for $30 after two years and you require 12%

return.

7.

A stock paid $4 dividends last year, the dividends grow by 10% annually.

What would you be willing to pay for it today? assuming that you will hold it

forever, Interest rate is12%