WEEK FOUR

1. (Common stockholder expected return) Bennett, Inc. common stock currently sells for $22.50 per share. The company's executives anticipate a constant growth rate of 10.2 percent and an end-of-year dividend of $2.75.

a. What is your expected rate of return if you buy the stock for $22.50?

b. If you require a return of 16 percent, should you purchase the stock?

a. If you buy the stock for $22.50, your expected rate of return is %. (Round to two decimal places.) ANSWER:

b. If you require a return of 16 percent, the value of the stock for you is $(Round to the nearest cent.) ANSWER:

2. (Preferred stockholder expected return)You own 100 shares of Budd Corporation preferred stock at a market price of $ 18 per share. Budd pays dividends of $2.00. What is your expected rate of return? If you have a required rate of return of 13 percent, should you sell your shares or buy more of the stock? ANSWER:

a. Your expected rate of return is %. (Round to two decimal places.) ANSWER:

b. If you have a required rate of return of 13 percent, the value of the stock for you is $(Round to the nearest cent.) ANSWER:

PLEASE ANSWER EACH (BOTH) QUESTION CORRECTLY AND FULLY!!!