Question

1.

What should be the price of a stock that offers a $5 annual dividend with no prospects of growth, and has a required return of 11%?

$4.86

$45.45

$34.56

$30.24

2.

Venus Sportswear Corporation has preferred stock outstanding that pays a quarterly dividend of $2. It has a price of $100. What is the required rate of return on the preferred stock?

10%

2%

2.5%

8%

3.

RTF, Inc. common stock pays an annual dividend that increases by 4.4% annually. The expected rate of return on this stock is 8.2%. What is the dividend yield?

4.4%
		5.25%
		6.25%
		3.8%

4.

How much are you willing to pay for one share of stock if the company is going to pay $1.2 annual dividend in one year, the dividends increase by 6% annually and you require 10% rate of return?

$30.0
		$31.8
		$40.0
		$42.4

Answer 1

Q-1).

Price of Stock = Annual dividend/Required Return

Price of Stock = $5/11%

Price of Stock = $45.45

Option 2

Q-2).

Required Return of preferred Stock = (Quarterly Dividend*4)/Current Price

Required Return of preferred Stock = ($2*4)/$100

Required Return of preferred Stock = 8%

Option 4

Q-3)

Dividend Yield = Expected Return on STock - Dividend Growth rate

Dividend Yield = 8.2% - 4.4%

Dividend Yield = 3.8%

Option 4

Q-4).

where, D1 = Dividend in 1 years = $1.2

g = growth rate = 6%

ke = Rewuired return = 10%

P0 = $30

So, price of stocj is $30

Option 1

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