1. The Starr Co. just paid a dividend of $1.95 per share. Dividends are expected to grow at a constant rate of 4.5% per year indefinitely. If investors require an 11% return on the stock, what is the current price? What will the price be in three years? And in 15 years?

2. ECY, Inc.'s next dividend payment will be $2.90 per share. Dividends are expected to maintain a 5.5% growth rate forever. If ECY shares are currently selling for $53.10 each, what is the required return?

3. Shiller Corporation will pay a dividend of $2.75 per share next year. The company has committed to increasing its dividend 5% annually indefinitely. If you require an 11% return on your investment, how much will you pay for the company's stock today?

4. Newspapers reported last week that Bennington Enterprises earned $29 million this year. The article also reported that the company's return on equity was 17%. Bennington retains 80% of its profits. What is the company's earnings growth rate? How much will profits be next year?

1.- What is the price/earnings multiple?

2.- The price/earnings multiple is a function of 3 factors. Which are?

3. What is the weighted average cost of capital?

4. What is the capital asset pricing model (CAPM)?

5. Write the formula with which the expected return on stocks is determined. Explain each component of the formula.