1. Medical Corporation of America (MCA) has a current stock
price of $35, and its last dividend (D0) was $2.50. In view of
MCA’s strong financial position, its required rate of return is
12%. If MCA’s dividends are expected to grow at a constant rate in
the future, what is the firm’s expected stock price in five
years?
Choice: $43.68 Choice: $48.95 Choice: $52.10 Choice: $68.75
2. A broker offers to sell you shares of Bay Area Healthcare, which
just paid a dividend of $2 per share. The dividend is expected to
grow at a constant rate of 6% per year. The stock’s required rate
of return is 12%. What is the expected dollar dividend at the end
of three years?
Choice: $2.38 Choice: $3.12 Choice: $5.00 Choice: 12%
3. A broker offers to sell you shares of Bay Area Healthcare, which
just paid a dividend of $2.50 per share. The dividend is expected
to grow at a constant rate of 5% per year. The stock’s required
rate of return is 12%. What would be a price for this stock?
Choice: $32.25 Choice: $37.50 Choice: $43.10 Choice: $45.65
1)
| Stock price in 5 years (P5) | D6÷(r-g) | |
| Here, | ||
| Expected dividend (D6) | $ 3.26 | =2.5*(1+4.53%)^6 |
| Required return ( r) | 12.00% | |
| Growth rate (g) | 4.53% | =(35*12%-2.5)/(35+2.5) |
| Stock price in 5 years (P5) | $ 43.68 | |
| 3.26/(12%-4.53%) |
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