Question

Given the information in the table,

Current dividend $4.50
Growth Rate in Dividends 2%
Required Return on Equity Rs 5%

According to the Gordon Growth Model, what is the price of this stock in year 1 ?

$158.51

$150.96

$156.06

$159.71

Use the bond term's below to answer the question
Maturity 6 years
Coupon Rate 7%
Face value $1,000
Annual Coupons
The bond is callable in year 4
The call price is $1,050


The interest rate in period 3 is 3%
If the firm calls back the bond, how much does it save or lose?

$28

$24

$25

$27

$29

Stock XYZ has a current dividend of $6.00 . The dividend is expected to grow at 2.00% per year until year 3 and then at 1.00% per year for the rest of time.
Based on the riskiness XYZ, its discount rate is 7.00% . With this information, what is the dividend yield from today to year 1?

1.11%

7.00%

5.60%

6.19%

6.00%

5.89%

Answer 1

Dear student, only one question is allowed at a time. I am answering the first question

Price of a constant growth stock is given by

D1 / (Re – G)

Where,

D1 = Expected dividend next year

= Current Dividend x (1 + Growth)

= $4.50 x 1.02

= $4.59

Re = Required rate of return = 5% or 0.05

Growth rate = 2% or 0.02

So, Price

= $4.59 / (0.05 – 0.02)

= $4.59 / 0.03

= $153

So, the expected price one year from now

= Price now x (1 + Growth)

= $153 x 1.02

= $156.06

So, as per above calculations, option C is the correct option