Question 1
Sorenson Corp.’s expected year-end dividend is D1= $1.90, its required return is rs= 13.5%, its dividend yield is 9%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 8 years; that is, what is P8?
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$21.36
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$24.95
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$28.50
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$30.02
Question 2
Stock A has a beta of 0.8 and Stock B’s beta is 1.2. The market risk premium is 8%, and the risk-free rate is 5.5%. Both stocks have a constant dividend growth rate of 9%. If the market is in equilibrium, which of the following statements is correct?
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Stock A must have a lower stock price than Stock B.
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Stock B could have the lower expected return.
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Stock B must have the lower required return.
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Stock A must have a lower dividend yield than Stock B.
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