STOCKS - STOCKS 1. Assume that a $3 stated preferred stock...

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STOCKS 1. Assume that a $3 stated preferred stock is trading at $36. Assume that the required rate of return is 17%. What is the market capitalization rate? By how much is the stock mispriced? 2. Assume that a preferred stock trading at $50 is in equilibrium. If the stated dividend is $5, what is the market capitalization rate? What is the required rate of return? 3. Assume that a stock is currently priced at $105. Also assume that your investment horizon is one year. You are expecting the stock to pay a dividend of $2 in the next year and the price to be $124 at the end of next year. What is the return you would expect to earn from the stock? If the required rate of return is 25%, what is the value? By how much is the stock mispriced? 4. A common stock has just paid a dividend of $3. It is trading at $30 and the dividends are expected to grow at 4% per year forever. What is the market capitalization rate, the dividend yield and the capital gains yield? What is the required rate of return? 5.
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This note was uploaded on 04/05/2011 for the course FIN 320 taught by Professor Yatin during the Winter '07 term at Grand Valley State University.

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