1. A stock pays no dividend and is expected to be sold for $50 after 4 years. If the investor's RRR is 12%, at what price is he/she willing to buy it?
2. ABC company has its ROE=10% and a retention rate at 30% of its net income for reinvestment purpose. It recently paid a dividend of $2. The stock is currently selling for $50. What is the expected rate of return for the stock? If your RRR is 12%, will you be willing to buy it? If your RRR is 15%, will you be willing to buy?
3. A common stock sells for $50 and will pay a dividend of $3.5 next period. The firm has a constant growth rate of 15%. What is the expected rate of return? If your RRR is 20%, will you buy it?
4. You're planning to buy between preferred Stock A and B. Stock A pays an annual dividend of $6 and is currently selling for $60. Stock B pays an annual dividend of $8 and is selling for $75. Which one will you buy?