B the probability distribution for total uncertainty

b. The probability distribution for total uncertainty is the X-axis from - to +.
8-4
Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free
rate? Explain.
9-1
7. Warr Corporation just paid a dividend of $1.50 a share (that is, D0 = $1.50). The dividend
is expected to grow 7% a year for 3 years and then at 5% a year thereafter. What is the expected
dividend per share for each of the next 5 years?

9-2
Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (that is D1= $0.50)
The dividend is expected to grow at a constant rate of %7 a year. The required rate of return on the stock,
Rs is 15%. What is the stock's current value per share?
9-4
Hart Enterprise recently paid a dividend, Do of $1.25. It expects to have nonconstant growth of 20% for 2
years followed by a constant rate of 5% thereafter. The firm’s required return is 10%.
a. How far away is the terminal, or horizontal, date?
b. What is the firm’s horizontal, or terminal value?
c. What is the firm’s intrinsic value today P0?

. 80 . 37 $
05 . 0 10 . 0
) 05 . 1 ( 80 . 1 $


c. The firm’s intrinsic value is calculated as the sum of the present value of all dividends during
the supernormal growth period plus the present value of the terminal value. Using your
financial calculator, enter the following inputs: CF
0
= 0, CF
1
= 1.50, CF
2
= 1.80 + 37.80 =
39.60, I/YR = 10, and then solve for NPV = $34.09.