(a) Plantfood paid a $3 annual dividend on its common stock and pledged to increase the dividend by 3% each year. If the market price of the stock is $30, what is the required rate of return for this stock? (3 points)
(b) Datasoft currently pays a dividend of $0.70 per share. These dividends are expected to grow by 20% for the next two years, followed by a steady growth of 3.5% thereafter. What will be the current price of Datasoft shares when the required return of 15% is achieved? (4 points)
(c) Compare and contrast the risk and return of debt and equity securities for both lenders/investors and issuers. (9 points)
(d) To formally derive and discuss the dividend discount model used for valuation of common stocks. (9 points)

Answer rating: 100% (QA)

a The required rate of return for this stock is 10 b The current price of Datasoft shares when the required return of 15 is achieved is 2358 c Risk an... View the full answer