Most of these problems do not require any calculations, although you can substitute your own numbers to fit the question. Stock questions use the equation for the Dividend Growth Model P0 = D1/(r g), where P0 is the stocks price, D1 is the next dividend, r is the investors required return, and g is the stocks dividend growth rate. Bond questions are focused on the relationship between the bonds coupon rate and yield to maturity and how that affects the bonds price.

1. (3 points) Three investors, A, B and C, have the same required return and agree on the size of the next dividend, but disagree about what the dividend growth rate is. A has the lowest assumed growth rate, C the middle, and B is the highest. Rank each investor according to the price they would be willing to pay for the stock, from highest to lowest.

2. (3 points) Three investors, G, H and I, have different required returns but agree on the size of the next dividend and the dividend growth rate. I is willing to pay the highest price for the stock, G the next highest and H the lowest. Rank each investor according their required returns, from lowest to highest.

3. (3 points) Three investors, X, Y and Z, have the same required returns and agree on what the dividend growth rate is, but disagree on what the next dividend will be. X thinks it will be $1.75, Y $2.25 and Z $2.00. Who is willing to pay the lowest price? The highest? The one in the middle?

4. (1 point) Three investors - Bip, Bop and Boop agree on what a stocks next dividend but each has put a different price on the stock. Which investor has the lowest difference between their required return and the growth rate?