Fill in the blanks:
1 Favored stock will pay a dividend this year of $1.76 per share. Its dividend yield is 8%. At what price is the stock selling? (Do not round intermediate calculations.) 
Current price 
$ 
2 Preferred Products has issued preferred stock with an annual dividend of $7.92 that will be paid in perpetuity. 

a. 
If the discount rate is 11%, at what price should the preferred sell? 


Current price 
$ 


b. 
At what price should the stock sell 1 year from now? 


Future price 
$ 


c. 
What is the dividend yield, the capital gains yield, and the expected rate of return of the stock? (Leave no cells blank  be certain to enter "0" wherever required. Enter your answers as a whole percent.) 







Dividend yield 
% 



Capital gains yield 
% 



Expected rate of return 
% 






2
3 Steady As She Goes Inc. will pay a yearend dividend of $2.10 per share. Investors expect the dividend to grow at a rate of 5% indefinitely. 
a. 
If the stock currently sells for $21 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) 
Expected rate of return 
% 
b. 
If the expected rate of return on the stock is 17.5%, what is the stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Stock price 
$ 
4 Integrated Potato Chips paid a $1.70 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 5% per year. 
a. 
What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) 

Expected Dividend 
Year 1 
$ 
Year 2 

Year 3 


b. 
If the discount rate for the stock is 11%, at what price will the stock sell today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Current price 
$ 
c. 
What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Future price 
$ 
d. 
If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank  be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) 
d. 
If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank  be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) 

Year 1 

Year 2 

Year 3 

Dividend 
$ 

$ 

$ 

Sale of stock 













Total cash flow 
$ 

$ 

$ 








PV of cash flow 
$ 

$ 

$ 


5 Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $2 per share. Find the stock price, P/E ratio, and growth rate of dividends for plowback ratios of: (Leave no cells blank  be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the growth rate as a percent rounded to 1 decimal place.) 

Plowback Ratios 
Stock Price 
P/E Ratio 
Growth Rate of 
a. 
Zero 
$ 

% 
b. 
.20 


% 
c. 
.70 


% 

6 Arts and Crafts, Inc., will pay a dividend of $2 per share in 1 year. It sells at $40 a share, and firms in the same industry provide an expected rate of return of 14%. What must be the expected growth rate of the company’s dividends? (Do not round intermediate calculations. Enter your answer as a whole percent.) 
Expected growth rate 
% 
7 NoGrowth Industries pays out all of its earnings as dividends. It will pay its next $6 per share dividend in a year. The discount rate is 21%. 
a. 
What is the priceearnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
P/E ratio 

b. 
What would the P/E ratio be if the discount rate were 20%? (Round your answer to 2 decimal places.) 
P/E ratio 

Subject  Business 
Due By (Pacific Time)  11/15/2015 6pm 
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