Part A

Assume that Bon Temps has a beta coefficient of $1\mathrm{.}5,$ that the risk$-$free rate $($the yield

on T$-$bonds$)$ is $3\%,$ and that the required rate of return on the market is $8\%.$ What is

Bon Temps's required rate of return?

Part B

Assume that Bon Temps is a constant growth company whose last dividend $($D$0,$ which

was paid yesterday$)$ was $$2\mathrm{.}30$ and whose dividend is expected to grow indefinitely at

a $4\%$ rate.

$(1)$ What is the firm's expected dividend stream over the next $3$ years?

$(2)$ What is its current stock price?

$(3)$ What is the stock's expected value one year from now?

$(4)$ What are the expected dividend yield, capital gains yield, and total return during

the first year?

Part C

Now assume that the stock is currently selling at $$40\mathrm{.}00.$ What is its expected rate of

return?

Part D

What would the stock price be if its dividends were expected to have zero growth?

Part E

Now assume that Bon Temps's dividend is expected to grow $30\%$ the first year, $20\%$

the second year, $10\%$ the third year, and return to its long$-$run constant growth rate of

$4\%.$ What is the stock's value under these conditions? What are its expected dividend

and capital gains yields in Year $1?$ In Year $4?$