1. Today you consider buying stock IBX and hold it for a year. You expect the price of IBX stock to be $109 per share a year from now. Its current market price is $100, and you expect it to pay a dividend one year from now of $3 per share.

• What is the stock's expected dividend yield, rate of price appreciation (capital gain), and expected holding-period return?
• If the stock has a risk premium of 8%, and the risk-free rate is 5% per year, what is the required rate of return on IBX stock? Based on your required rate of return, would you buy the stock today?
• What is the intrinsic value of IBX stock? Based on the intrinsic value, would you buy the stock today? Round to 0.01.

Today you consider buying stock IBX and hold it for two years. The current stock price is $101 per share. Here is your prediction about the stock price and the dividend amount of the stock for the next two years:

• IBX will pay a dividend of $3 per share in one year and $4 per share in two years.
• The price will be $115 per share in two years.
• If you require a return of 10% per year, would you buy the stock? Explain your answer. Round to 0.01.

- A firm recently paid a dividend of $3 per share. Assume its dividends grow at a constant rate of 6% per year.

1. If you hold 100 shares of the firms stock, how much dividend do you expect to receive in 3 years? (Round to 0.001)
2. Whats the intrinsic value of its stock if investors require a return of 10% per year?

• IBXs dividend in one year is expected to be $2, and it is expected to grow at 10% per year forever. If investors required rate of return of IBX stock is 15% per year, whats next years expected price of the stock by assuming its market price is always equal to its intrinsic value?

• IBXs dividend in one year is expected to be $2, and it is expected to grow at 10% per year forever. If its current stock price is equal to its intrinsic value, which is $40, what is investors required rate of return for the stock implied by the constant growth DDM?

• Company Xs earnings this year were $3 per share. The dividend was just paid. The risk premium of the stock 11%, and the risk-free rate is 6%.

1. Find the price of company X using Constant-growth DDM if the market estimate of Company X's ROE is 15% and the plowback ratio is 0.
2. Find the price of company X using Constant-growth DDM if the market estimate of Company X's ROE is 15% and the plowback ratio is 1/2.
3. Compare your answer from a) and b). Explain why one is greater than the other.
4. Find the price of company X using Constant-growth DDM if the market estimate of Company X's ROE is 19% and the plowback ratio is 0.3.
5. Find the price of company X using Constant-growth DDM if the market estimate of Company X's ROE is 19% and the plowback ratio is 0.7.
6. Compare your answer from d) and e). Explain why one is greater than the other.