1. a stock currently does not pay an annual dividend. An investor expects this p

Question

1. a stock currently does not pay an annual dividend. An investor expects this policy to remain in force. She believes, however, the stock of this company will sell for $87 per share four years from now. If she has an interest (discount) rate of 13%, the dividend discount model predicts the ccurrent price of this stock should be:

2. A company currently pays a dividend of $2 per share. It expects growth rate of the dividend to be 2% annually. If the interest rate is 11% what does the dividend discount model predict the current pricce of the stock should be?

3. If the annual interest rate is4.5%, the price of a three month treasury bill would be:

4. A $1000 face value bond, with an annual coupon of $75, one year to maturity and a purchase price of $985 has a current yield that equals____ and a YTM that equals __

5. A 30-year T bond has a face value of $1000, price of $997 with a $50 coupon payment. Assume the price of this bond increases to $1004 over the next year. The one-year holding period return is equal to:

please show steps for all

Explanation / Answer

1. Discount rate = 13%

Present value factor @ 13% for 4th year = 0.613

Current price of stock = 87 x 0.613 = $53.33

2. Current price of stock = D0(1+g) / (Ke-g)

= 2(1.02) / (0.11-0.02)

= $22.67

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