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ECON 301 A01/ A02 Assignment 3
Due: Friday October 28
th
by 3 p.m.
Answer all questions completely and concisely.
Show all calculations where appropriate.
1.
Compute the price of a share of stock that pays a $1 per year dividend and that you
expect to be able to sell in one year for $20 assuming you require a 15% return.
2.
If Universal Power (UP) is currently paying an annual dividend of $0.40 per share, its
dividend is expected to grow at a rate of 5% per year and the required return on equity is
10%. Calculate the price per share of UP’s stock.
= $8.40
3.
In September 2011, the price of Dawn West Nebraska (DWN) was $100 per share. At the
time DWN was paying an annual dividend of $1.10 per share.
If the required return on
equity was 8%, what growth rate in DWN’s dividend would investors have been
expecting?
$100 x (0.08g) = $1.10 x (1+g)
$8 $100g = $1.10 +$1.10g
$101.10g=$6.90
g = $6.90/$101.10 = 0.06824 = 6.8%
4.
You are the CEO of EBIT Bank which has the following Taccounts.
Assets
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This document was uploaded on 12/04/2011.
 Spring '09

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