Question 1 - Walmart has just paid an annual dividend of $3.23. Dividends are expected to grow by 8% for the next 4 years, and then grow by 4% thereafter. Walmart has

a required return of 9%.

(Note the wording of this problem. Typically, when a problem says "expected to grow for the next X years", they mean that the the cashflow will grow

constantly up to the end of year X, then the cashflow at year X will grow at some other rate in years X+1, X+2 etc.)

a. What is the expected dividend in four years?

b. What is the terminal value in four years ( )?

c. What is the value of the stock now?

Question 2 - Forever 21 is expected to pay an annual dividend of $3.28 per share in one year, which is then expected to grow by 4% per year. The required rate of return

is 14%.

a. What is the current stock price?

b. What is the current stock price if the annual dividend of $3.28 has just been paid? (i.e. paid yesterday or earlier today)

c. What is the current stock price if the annual dividend of $3.28 his about to be paid? (i.e. paid tomorrow or later today)

Question 3 - Samsung just paid an annual dividend of $3.3. The company has a required return of 10%.

a. If dividends are expected to be constant, what is the intrinsic value (fair price) of Samsung stock?

b. You now think that dividends will grow by 3% from year to year. What is the intrinsic value of Samsung stock?

Question 4- You bought a 10-year zero-coupon bond with a face value of $1,000 and a yield to maturity of 2.7% (EAR). You keep the bond for 5 years before selling it.

a. What was the price of the bond when you bought it?

b. What is your personal 5-year rate of return if the yield to maturity is still 2.7% when you sell the bond? (i.e. what is your rate of return given what you sold

it for at the end of year 5 and what you paid at year-0.)

c. What is your personal 5-year rate of return if the yield to maturity is 4.8% when you sell the bond? (i.e. what is your rate of return given what you sold it

for at the end of year 5 and what you paid at year-0.)

d. What is your personal 5-year rate of return if the yield to maturity is 1.3% when you sell the bond?