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Unformatted text preview: FNAN 301, Fall 2009, quiz 3, solutions Quantitative: find price with nonconstant dividend growth model 1. The annual dividend paid by Zorn Corp. common stock is expected to be $0 in 1 year, $0 in 2 years, $5.00 in 3 years, $7.00 in 4 years, and then grow by 4 percent a year forever after the expected dividend is paid in 4 years. In other words, the dividend expected in 5 years is 4 percent greater than the dividend expected in 4 years, the dividend expected in 6 years is 4 percent greater than the dividend expected in 5 years, etc. If the expected return on the stock is 14 percent, then what is the current price of one share of Zorn? 1. The annual dividend paid by Zorn Corp. common stock is expected to be $0 in 1 year, $0 in 2 years, $4.00 in 3 years, $6.00 in 4 years, and then grow by 4 percent a year forever after the expected dividend is paid in 4 years. In other words, the dividend expected in 5 years is 4 percent greater than the dividend expected in 4 years, the dividend expected in 6 years is 4 percent greater than the dividend expected in 5 years, etc. If the expected return on the stock is 14 percent, then what is the current price of one share of Zorn? 1. The annual dividend paid by Zorn Corp. common stock is expected to be $0 in 1 year, $0 in 2 years, $5.00 in 3 years, $7.00 in 4 years, and then grow by 7 percent a year forever after the expected dividend is paid in 4 years. In other words, the dividend expected in 5 years is 7 percent greater than the dividend expected in 4 years, the dividend expected in 6 years is 7 percent greater than the dividend expected in 5 years, etc. If the expected return on the stock is 17 percent, then what is the current price of one share of Zorn? 1. The annual dividend paid by Zorn Corp. common stock is expected to be $0 in 1 year, $0 in 2 years, $4.00 in 3 years, $6.00 in 4 years, and then grow by 7 percent a year forever after the expected dividend is paid in 4 years. In other words, the dividend expected in 5 years is 7 percent greater than the dividend expected in 4 years, the dividend expected in 6 years is 7 percent greater than the dividend expected in 5 years, etc. If the expected return on the stock is 17 percent, then what is the current price of one share of Zorn? 1 FNAN 301, Fall 2009, quiz 3, solutions Quantitative: p rice of stock with ediv1, ediv2, P1, and P2, and annual dividends forever of at least X 2. The common stock of Vanilla Corporation is expected to pay an annual dividend of at least $2.00 per share forever. The next three dividends are expected to be $2.00 in one year, $4.00 in two years, and $6.00 in three years. The price of the stock is expected to be $75.00 in one year and $82.25 in two years. The expected return on the stock is 15.0 percent. What is the current price of one share of Vanilla stock?...
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This note was uploaded on 02/03/2011 for the course FINANCE 301 taught by Professor Murray during the Spring '09 term at George Mason.
 Spring '09
 MURRAY

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