Real Estate Investment Trust and Stock
Stock Valuation Problems Handout
1. ABC Company’s stock pays a fixed dividend of $2. If an investor’s required rate of return is 8%, then what is the value of the stock? $25
2. DEF Ltd. has stock outstanding that pays a fixed $5 dividend and currently markets for $22. What is the expected rate of return for the stock? 22.7%
3. GHI Inc.’s stock is selling for $33 in the market and pays a $3.60 annual dividend.
a. If you purchase the stock at its current price, what will be the expected rate of return on the stock? 10.91%
b. If an investor’s required rate of return is 10%, what is the value of the stock for that investor? $36
c. Should the investor acquire the stock? YES
4. JKL S.A. is expected to pay dividends on it’s stock this year of $2.40, and investors anticipate constant growth after that of 6%. If investors’ required rate of return is 15%, what would be the current price of the stock? $26.67
5. MNO Corporation’s common stock paid a $3.50 dividend last year. At a constant growth rate of 5%, what is the value of the stock if investors require a 20% rate of return? $24.50
6. The common stock of PQR Co. is selling for $32.84. The stock recently paid dividends of $2.94 per share and has a projected growth rate of 9.5%. If you purchase the stock at the market price, what is your expected rate of return? 19.3%
7. STU Plc.’s common stock currently sells for $22.50 per share. The company’s executives anticipate a constant growth rate of 10%, and end-of-year dividend of $2.
a. If you purchase the stock at its current market price, what will be the expected rate of return? 18.89%
b. If you require a 17% return, would you purchase the stock? YES
1. ABC Company’s stock pays a fixed dividend of $2. If an investor’s required rate of return is 8%, then what is the value of the stock? $25
2. DEF Ltd. has stock outstanding that pays a fixed $5 dividend and currently markets for $22. What is the expected rate of return for the stock? 22.7%
3. GHI Inc.’s stock is selling for $33 in the market and pays a $3.60 annual dividend.
a. If you purchase the stock at its current price, what will be the expected rate of return on the stock? 10.91%
b. If an investor’s required rate of return is 10%, what is the value of the stock for that investor? $36
c. Should the investor acquire the stock? YES
4. JKL S.A. is expected to pay dividends on it’s stock this year of $2.40, and investors anticipate constant growth after that of 6%. If investors’ required rate of return is 15%, what would be the current price of the stock? $26.67
5. MNO Corporation’s common stock paid a $3.50 dividend last year. At a constant growth rate of 5%, what is the value of the stock if investors require a 20% rate of return? $24.50
6. The common stock of PQR Co. is selling for $32.84. The stock recently paid dividends of $2.94 per share and has a projected growth rate of 9.5%. If you purchase the stock at the market price, what is your expected rate of return? 19.3%
7. STU Plc.’s common stock currently sells for $22.50 per share. The company’s executives anticipate a constant growth rate of 10%, and end-of-year dividend of $2.
a. If you purchase the stock at its current market price, what will be the expected rate of return? 18.89%
b. If you require a 17% return, would you purchase the stock? YES