CONSTANT-GROWTH COMMON STOCK
1. 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?
2. What is the stock’s rate of return if the market price of the stock is $35?
Problem Two
Preferred Stock Price and Return
1. 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?
2. 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?
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