Question

1.A firm has a return on equity of 10%, Earnings per share of $2 and is expected to pay $0.5 per share annual dividend. If you require 12.5% rate of return, how much are you willing to pay for this company's stock now?

$4
		$10
		$20
		$25

2. Which of the following is true for a firm having a stock price of $42, an expected dividend of $3, and a sustainable growth rate of 8%?

It has a required return of 15.14%.
		It has a dividend yield of 7.35%.
		The stock price is expected to be $45 next year.
		It has a capital gain rate of 7.14%.

3. A stock sells for $40. The next dividend will be $2 per share. If the rate of return earned on reinvested funds is a constant 15% and the company reinvests 80% of earnings in the firm, what is the required rate of return on the stock?

8%
		15%
		16%
		17%

Answer 1