Question

Problem 10-29

The Fleming Corporation paid a dividend of $0.45 last year. Over the next 12 months, the dividend is expected to grow at 13 percent, which is the constant growth rate for the firm. The new dividend after 12 months will represent D₁. The required rate of return is 18 percent.

Compute the price of a common share. (Round the final answer to 2 decimal places.)

Common share price ______   $

Problem 10-34

Triple Peaks Playhouse will pay a quarterly dividend of $0.50 at the end of the next quarter. It has common share price of $40.00 and a constant growth rate of 4 percent.

Compute the required rate of return. (Round the final answer to 2 decimal places.)

Required rate of return  _______   %

MCQ 10-16 If a bond's value rises above its par value during...

If a bond's value rises above its par value during its life, interest rates have:

Multiple Choice

• gone up
• gone down
• stayed the same
• there is no correlation with interest rates

Answer 1

Answer : 10-29) Calculation of Common Share Price

Common Share Price = Expected Dividend / (Required rate of Return - growth rate)

= [0.45 * (1 + 0.13)] / [0.18 - 0.13]

= 0.5085 / 0.05

= $10.17

Answer : 10-34) Calculation of Required Return

Required Return =[ Expected Annual Dividend / Common share Price] + growth rate

= [ (0.50 * 4) / 40 ] + 0.04

= [2 / 40] + 0.04

= 0.09 or 9%

Answer for MCQ : Correct Option is gone down

Reason :

If a bond's value rises above its par value during its life, interest rates have gone down.