PROBLEM 1
PREFERRED STOCK VALUATION
1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.
Dividend rate	14.0%
Par value	$100.00
Discount rate	12.0%
Present Value
PROBLEM 2
PREFERRED STOCK VALUATION
2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.
Market price	$33.00
Dividend	$3.60
a) return
b) value
c) invest?
PROBLEM 3
COMMON STOCK VALUATION
3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?
Growth rate	7.0%
Dividend	$1.32
Required rate	11.0%
Value
PROBLEM 4
COMMON STOCK VALUATION
4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.
Dividends last year	$1.32
Dividend growth	8.0%
Current market price	$23.50
a) expected rate of return
b) required return	10.50%
value
c) invest?

Instructions

1)What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.2)Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.a)What is the expected rate of return on the stock?b)If you require a 10% rate of return, what is the value of the stock to you?c)Would you invest in the stock? Explain.3)A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?4)A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely. a)If the stock currently sells at $23.50 per share, what is the stock's expected return? b)If you require a return of 10.5%, what is the value of the stock for you?c)Should you make the investment? Explain.