Common Stock Assumption #$1$: constant perpetuity

You are analyzing a share of ABC Company common stock for possible purchase. Assume that your analysis has revealed that you expect the stock to pay a constant, semiannual dividend of $$25$ per share. This dividend is expected to continue into the foreseeable future $($i$.$e$.,$ forever$).$ Your required rate of return on this stock is $14\%$ per year, compounded semiannually. Further research reveals that this common stock has a market price of $$390$ per share.

A$.$ Calculate the value of this common stock based on the required rate of return.

B$.$ Calculate the expected return on this common stock based on the market price.

C$.$ Should you invest in the stock? Why or why not? Be sure to use your results from BOTH parts B and C above.

$2.$ Common Stock Assumption #$2$: growing perpetuity

You are analyzing a share of XYZ Company common stock for possible purchase. Assume that your analysis has revealed that the most recent dividend paid $($i$.$e$.,$ the previous or past dividend$)$ was D$0=$ $$10$ per share. Dividends are paid semiannually and are expected to grow at a rate of $5\%$ per year into the foreseeable future $($i$.$e$.,$ forever$).$ Your required rate of return on this stock is $12\%$ per year, compounded semiannually. Further research reveals that this common stock has a market price of $$960$ per share.

A$.$ Calculate the next four upcoming dividends for this common stock. That is$,$ calculate D$1,$ D$2,$ D$3,$ and D$4.$

B$.$ Calculate the value of this common stock based on the required rate of return.

C$.$ Calculate the expected return on this common stock based on the market price.

D$.$ Should you invest in the stock? Why or why not? Be sure to use your results from BOTH parts B and C above.

$3.$ Common Stock Assumption #$2$: growing perpetuity

You are analyzing a share of REC Company common stock for possible purchase. Assume that your analysis has revealed that you expect the UPCOMING dividend to be D$1=$ $$55$ per share. Dividends are paid quarterly and are expected to grow at a rate of $12\%($compounded quarterly$)$ per year into the foreseeable future $($i$.$e$.,$ forever$).$ Your required rate of return on this stock is $16\%$ per year, compounded quarterly. Further research reveals that this common stock has a market price of $$6000$ per share.

A$.$ Calculate the next four upcoming dividends for this common stock. That is$,$ calculate D$1,$ D$2,$ D$3,$ and D$4.$

B$.$ Calculate the value of this common stock based on the required rate of return.

C$.$ Calculate the expected return on this common stock based on the market price.

D$.$ Should you invest in the stock? Why or why not? Be sure to use your results from BOTH parts B and C above.