uestion $4$

A stock with the following dividends was bought:

The stock was purchased for $$55$ and is expected to be sold for $$67\mathrm{.}50$ in the next three

years.

i$.$ What is the dividend growth rate?

$(3$ marks$)$

ii$.$ What is the dividend yield of the stock?

$(3$ marks$)$

iii. If the dividend growth rate is expected to continue, determine the expected rate of

return for the stock.

$(3$ marks$)$

You are looking to invest in the common stock of Judea Limited. Based on financial

information obtained from the company, the stock is expected to pay out dividend of $$3\mathrm{.}24$

today. The dividend of this stock is expected to grow at $5\%$ for the next three years, then

maintain a constant growth rate of $4\%.$ The expected return on the stock is $6\%.$ Compute

the market value of the common stock today.

$(12$ marks$)$

The stock of a company on the JSE is currently trading at $$400$ per share. The company

paid out dividend of $$\frac{10}{?}$ share. The dividend of the stock is expected to maintain a $15\%$

growth rate. Calculate the required rate of return for the stock.

$(4$ marks$)$

Briefly explain the difference between a Preferred Stock and Common Stock.

$(5$ marks$)$

$($Total $30$ marks$)$

END OF ASSESSMENT