Cornell University Gregory Besharov Economics 3330: Problem Set 11 Due November 24, 2008 1. A common stock pays an annual dividend per share of $2.10. The risk-free rate is 7% and the risk premium for the stock is 4%. If the annual dividend is expected to remain at $2.10, what is the value of the stock? 2. Suppose that the risk-free rate of return r f is 10%, the market rate of return r m is 15%. A company has a beta of 1.5. If the dividend per share during the coming year, D 1 , is $2.50, at what price should a share sell? 3. Question 10 from Chapter 14 (p.470) of the text 4. The following questions refer to “The Superinvestors of Graham-and-Doddsville” by Warren Buffett, available on the course website. a. Buffett writes: “Crucial to this examination is the fact that these winners were all well known to me and pre-identified as superior investors, the most recent identification occurring over 15 years ago.” Why is this crucial? In what way were the superior investors pre-identified? b. How many of the “peasants” at Graham-Newman from 1954 to 1956 have subsequent investment
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This note was uploaded on 11/15/2009 for the course ECON 3330 at Cornell.