The constant dividend growth rate and what the stock price

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Reference no: EM13215422

1. We would expect that, all else being equal, investors would pay less for a stock that they view as having become more risky. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 14% rate. The constant dividend growth rate is 4%. What would the stock price be?

$14.29
$20.00
$20.80
$28.57

2. We would expect that, all else being equal, investors would pay more for a stock with a higher dividend growth rate. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 6% rate. The required rate of return is 11%. What would the stock price be?

$29.71
$31.71
$40.00
$42.40

3. Suppose a zero-coupon bond is selling for $614.00 today. It promises to pay $1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about ____.

4%
5%
6%
7%

4. The cash flows for a perpetuity continue into the future indefinitely. An example of a perpetuity is

preferred stock.
corporate bonds.
a home mortgage.
a consumer loan.

5. The name "annuity" suggests annual payments, but in fact we apply the term to:

any set of payments of the same dollar amount irrespective of timing.
any set of monthly payments.
any set of regularly spaced payments of the same dollar amount.
any set of multiple payments.

6. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 4% rate forever, and investors require an 11% return on their investment in this stock. What should the stock's price be?

$18.18
$28.57
$29.71
$31.71

Reference no: EM13215422

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