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Unformatted text preview: Problem Sets I , Finance 320 Problem Set #7 I. The stock of Merton Inc. currently has a required rate of return of 15% and its dividends are growing at the rate of 3% per year. If Merton just paid a dividend of $1 this year, what is the current price of a share of Merton stock based on the Dividend Growth Model? 2. Black and Scboles Co. is expected to maintain a constant 4% growth rate in its dividends indefinitely. If the company has a dividend yield of 6%, what is the required return on Black and Scholes' stock? 3. You want to estimate the current price of a share of Duffie Corp. stock. You know that next year's dividend is expected to be $2.20 and the growth rate of dividends is 5%. You look in the Wall Street Journal and fmd that the riskfree interest rate is 4%. You also know from looking in Valueline that Duffie Corp. has a beta of 1.35. If the required return on the market is currently 12%, what is Duffie's current share price?...
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.
- Fall '10