Module 4 Problem Set 1 Part B
1. Assume you own 10 shares of Johnson and Johnson. You paid $43/sh. You sold the stock one year later for $40/share. During the year you held the stock, you earned no Dividends. What was your total dollar return? What was your percentage return?
2. Assume a share of preferred stock pays a constant dividend of $1.25. If the required return is 6.5%, what is the expected price of this preferred stock?
3. A share of common stock will pay a dividend of $2.00 at the end of this year so D1= $2.00. If the expected long-run constant growth rate for this stock is 4 percent, and if investors require an 6 percent rate of return (Rs=6%), what is the expected price of the stock?
4. Martian stock is expected to grow at 8% in year 1, 9% in year 2 and 6% in year 3.It is then expected to grow at a constant rate of 3% in the years that follow. The required rate of return (Rs) equals 9%. The company just aid a Dividend of $1.55 at the end of last year so (D0 =$1.55. What is the expected price of this stock? If the stock was selling on the market for $45, would you buy it based on your calculations? Explain your answer
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