Calculate Dividend Yield

1. Calculate P1 for the common stock of Microsoft Corporation Use the Dividend Growth Model (DGM) Assume Microsoft’s last annual dividend was D0 = $129 per share and the company expects the dividend to have a constant growth rate of 122 percent If investors require a return of 15 percent on this stock, determine the future intrinsic value of the company’s stock in one year or P1

A $5168

B $5413

C $5800

D $6496

E $7850

2 Calculate Dividend Yield for Alpha Beta Corporation The last annual dividend was D0 = $124, but is projected to continue growing every year by g = 55% and investors in this stock expect a return of Ri = 900 percent What is the next annual dividend or D1? Also, if the stock’s price right now is P0 = $3784 then what is the expected dividend yield for the next year?

A1308; 35%

B1308; 39%

C1380; 43%

D1380; 48%

E1380; 55%

3Calculate Dividend Yield for Alpha Beta Corporation The last annual dividend was D0 = $124, but is projected to continue growing every year by g = 55% and investors in this stock expect a return of Ri = 900 percent What is the next annual dividend or D1? Also, if the stock’s price right now is P0 = $3784 then what is the expected dividend yield for the next year?

A1308; 35%

B1308; 39%

C1380; 43%

D1380; 48%

E1380; 55%

4Calculate Capital Gains from Price Appreciation If the last dividend of Alpha Beta Corporation was D0 = $124, but is projected to continue growing every year by g = 55 percent, and the stock’s price right now is P0 = $3784, then what is the stock’s expected price appreciation for the coming year? (HINT: the theory behind the Dividend Discount Model states that this question can be answered without any calculations)

A 47%

B 55%

C 65%

D 70%

E 81%

5Understanding CAPM language, part 1 Assume the common stock of PacWest Bank has a beta of 20; the risk-free return is Rf = 55 percent, and the market return is Rm = 120 percent According to CAPM and the formula for its Security Market Line (SML), the stock is correctly priced for its unique level of risk at an Expected Return of E(Ri)=:

A 195%

B 179%

C 185%

D 75%

Solution: