1. What is beta? How it is used to calculate investors required rate of return?
2. Summarize the historical trade-off between risk and return.
3. How do you measure the risk of an asset?
4. Why is the T-bills return independent of the state of the economy? Do T-bills promise a completely risk-free return? Explain.
5. The preferred stock of Dragons Inc. pays a $3 dividend. What is the value of the stock if your required rate of return is 10%?
6. Mosser Corporation, Inc. paid a $4 dividend last year. At a constant growth rate of 6%, what is the value of common stock if the investors require a 10% rate of return?

Tips for Success

• Using a single formula (Gordon Model), you can solve for different variables.
• Write down what is given and what is being asked.
• Rearrange the formula to find the value.