fdsa
archmage
module_08_stock_valuation_problems.xlsProblem 1
| Constant-Growth Common Stock | ||
| What is the value of a common stock if the firm's earnings and dividends are growing annually at 10%, the current dividend is $1.32, | ||
| and investors require a 15% return on investment? | ||
| g | 10% | |
| D0 | 1.32 | |
| r | 15% | |
| Value | = $1.32 x (1 + 10%) / (15%- 10%) | |
| 29.04 | ||
| What is the stock's rate of return if the market price of the stock is $35? | ||
| r | = $1.32 x (1 + 10%) / 35 + 10% | |
| 14.15% |
Problem 2
| Preferred Stock Price and Return | ||
| A firm has preferred stock outstanding with a $1,000 par value and a $40 annual dividend with no maturity. If the required rate of return is 9%, what is the price of the preferred stock? | ||
| Par | 1000 | |
| Div | 40 | |
| r | 9% | |
| Price | = $40 / 9% | |
| $ 444.44 | ||
| The market price of a firm's preferred stock is $24 and pays an annual dividend of $2.50. If the stock's par value is $1,000 and it has no maturity, what is the return on the preferred stock? | ||
| Price | 24 | |
| Div | 2.5 | |
| r | = $2.50 / 24 | |
| 10.42% |
