Reference no: EM132005668

Staton-Smith Software is a new start-up company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of $3.75 with a constant growth rate of 6%, with the first dividend at the end of year six. The company will be in business for 25 years total. What is the stock's price if an investor wants

a. a return of 11%

b. a return of 15%

c. a return of 22 %

d. a return of 38 %

2. You own a call option on Intuit stock with a strike price of $42. When you purchased the? option, it cost you $5.

The option will expire in exactly three? months' time.

a. If the stock is trading at $57 in three? months, what will be the payoff of the? call? What will be the profit of the? call?

b. If the stock is trading at $36 in three? months, what will be the payoff of the? call? What will be the profit of the? call?

c. Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration.

d. Redo ?(c?), but instead of showing? payoffs, show profits.