$(1)$ Assume that Bon Temps has a beta coefficient of $1\mathrm{.}2,$ that the risk$-$free rate $($the yield on T$-$bonds$)$ is $3\%,$ and that the required rate of return on the market is $8\%.$ What is Bon Temps's required rate of return? $9\mathrm{.}8\%.$

Beta

$r_{RF}$

$r_M$

$r_5=9\mathrm{.}8\%$

Assume that Bon I emps is a constant grown company wnose iast aiviaena $,$ wnicn was paia yesterday$)$ was $$2\mathrm{.}00$ and whose dividend is expected to grow indefinitely at a $4\%$ rate.

$(2)$ What is the firm's expected dividend stream over the next $3$ years? $$2\mathrm{.}288,$$$2\mathrm{.}37952,$ and $$2\mathrm{.}475.$

$D_0$

g

$14$

$15$

$16$

$17$ I

$19$

$(4)$ What is the stock's expected value one year from now? $$39\mathrm{.}66$

Module $4$ Exam B

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Accessibility: Investigate

E$27$

$f_x$

$\sqrt[\phantom{2}]{}$

Styles

Cells

A

B

C

D

E

F

G

H

I

J

K

L

M

N

$(6)$ Now assume that the stock is currently selling at $$40\mathrm{.}00.$ What is its expected rate of return?

$P_0$

$D_1$

$g$

$34$

$35$

$36$

$(7)$ What would the stock price be if its dividends were expected to have zero growth?

$9$

$1$

$42$

$(8)$ Now assume that Bon Temps's dividend is expected to grow $30\%$ the first year, $20\%$ the second year, $10\%$ the third year, and return to its long$-$run constant growth rate of $4\%.$ What is the stock's value under these conditions? What are its expected dividend and capital gains yields in Year $1?(9)$ In Year $4?$ In Year $4?$

$g_{S,2}$

$30\%$

gs$,3$

$20\%$

$g_{L,4}$

$10\%$

$r_s$

$4\%$

$0\mathrm{.}0\%$

en $n$ n

Module $4$ Exam B

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Accessibility: Investigate