1. Money Inc. just paid a dividend of $2.50 per share on its stock. The dividends are expected to grow at a consistent rate of 5% per year, indefinitely. If investors require an 11 percent return on Money stock, what is the current price? What will the price be in 3 years? 15 years?
2. The stock price of York Co. is $70. Investors require a 12 percent rate on similar stocks. If the company plans to pay a dividend of $4.25 next year, what growth rate is expected for the companys stock price?
3. Calgary Corporation stock currently sells for $84 per share. The market requires a 13 percent return on the firms stock. If the company maintains a constant 6 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?
4. According to the March 16, 2007, issue of the Value line investment survey, the growth rate in dividends for Suncor Energy, Inc. for the next 5 years is expected to be 7 percent. Suppose Suncor Energy meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5 percent indefinitely. Assume investors require an 11 percent return on Suncor Energy stock. Is the stock priced correctly? What answers could affect your answer?