Reference no: EM132750961

1 Suppose you are faced the following situation: you decide to buy company's share which is going to pay an annual dividend of $5 and promising the growth rate of 5%; You have estimated risk of the company and decided that required rate of return should be 10%. Another investor Anna estimated her return as 12%, since she thought that you are too optimistic regarding company's growth rate. Anna's colleague George is also interested in purchasing of stock, so he looked on market price and Anna's suggestion and decided to require something in middle- 11%. What will be the market price for the stock? What can you learn from this example?

2 The projected earnings per share for Risky Ventures, Inc., is $3.50. The average PE ratio for the industry composed of Risky Ventures' closest competitors is 21. After careful analysis, you decide that Risky Ventures is a little more risky than average, so you decide a PE ratio of 23 better reflects the market's perception of the firm. Estimate the current price of the firm's stock