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Determine how much you would be willing to pay for bond

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Reference no: EM132002676

1. A company just paid a dividend of $1.50 and expects the dividend will grow 7% per year indefinitely into the future. If the required rate of return on equity is 13%, a fair price for this stock today would be $ ____. (Please round your answer to 2 decimal places.)

2. You calculate that a stock has an implied required rate of return of 15%, a $2.00 current dividend (D0), and a 5% dividend growth rate. If the required rate of return increases to 16%, the stock price will fall by $ _____. (Please round your answer to 2 decimal places.)

3. Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i.e. a perpetuity), assuming you require an 8 percent rate of return on this investment. Please show work

Reference no: EM132002676

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