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?
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 Winter '07
 Yatin
 Finance, Dividend

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