Answer Happy

1. A stock is expected to pay a year-end dividend of $1.96 (D1 = $1.96). The dividend is expected to grow at a rate of 2% a year forever. If the company is in equilibrium and its expected and required rate of return is 12%, which of the following statements is CORRECT? a. The company's current stock price (P) is $20. b. The company's dividend yield 5 years from now is expected to be 14%. c. The constant growth model cannot be used because the growth rate is positive. d. The company's expected capital gains yield is 10% e. The company's expected stock price at the beginning of next year (P) is $20. 2. Stocks A and B have the following data. Assuming the stock market is efficient, and the stocks are in equilibrium, which of the following statements is CORRECT? A B Required return 8% 10% Market price $20 $16 Expected growth 4% 5% a. These two stocks should have the same intrinsic value. b. These two stocks must have the same dividend yield. c. These two stocks should have the same expected return. d. These two stocks must have the same expected capital gains yield. e. These two stocks must have the same expected year-end dividend. 3. Reddick Enterprises' stock currently sells for $33.07 per share. The dividend is projected to increase at a constant rate of 7.3% per year. The required rate of return on the stock, rs, is 11.0%. What is the stock's expected price 3 years from today? a. $37.86 b. $38.07 c. $39.83 d. $40.85 e. $43.84 4. The Ramirez Company's last dividend was $1.82. Its dividend growth rate is expected to be constant at 10% for 2 years, after which dividends are expected to grow at a rate of 7% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? a. $41.11 b. $42.64 c. $43.71 d. $37.38 e. $39.53