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How are investors able to interpret ratings

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Reference no: EM13306981

1. What are your thoughts about reinvestment rate risk, and how this can be related to interest rate risk. In addition, is there a connection between rating risk and credit/default risk? Typically, how are investors able to interpret ratings and what is meant by a downgrade?

2. Assume a corporation sells stock with a price of $40, and the last dividend paid to shareholders was $1.55. Assuming a growth rate of 3%, what is the rate of return on this stock?

- If a large corporation paid a dividend of $2.49 this past year, and there is a growth rate of 4.5%, based upon the rate of return calculated above (rounded), what is the price of share of this common stock?

- A corporation is making preferred dividend payments of $ .75 per quarter and the rate of return is 6%. What is the price of share of this preferred stock? (Hint: The approach is similar to the calculation of the price of a share of common stock, but just keep in mind that preferred dividends are fixed and do not grow).

Reference no: EM13306981

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