Capital Markets

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• Capital Markets

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Problem 1
Suppose Soft People, Inc. is selling at 19.00
and currently pays an annual dividend of 0.65
per share. Analysts project that the stock will
be priced around 23.00 in one year. What is the
expected return?
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Problem 1

• Expected Return 23.00 0.65 19
• --------------------
• 19
• 24.47

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Problem 2

• In September of 2004, Microsoft, Inc. was trading
  at 27.29 per share. At that time, Microsoft was
  paying an annual dividend of 0.32 per share, and
  analysts had set a 1-year target price around
  33.30 per share. What is the expected return on
  this stock?

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Problem 2

• Expected Return 33.30 0.32 27.29
• ------------------------
• 27.29
• 23.20

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Problem 3

• LaserAce is selling at 22.00 per share. The most
  recent annual dividend paid was 0.80. Using the
  Gordon Growth model, if the market requires a
  return of 11, what is the expected dividend
  growth rate for LaserAcer?

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Problem 3
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Problem 4

• Huskie Motors just paid an annual dividend of
  1.00 per share. Management has promised
  shareholders to increase dividends a constant
  rate of 5. If the required return is 12, what
  is the current price per share?

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Problem 4
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Problem 5

• In September of 2004, Microsoft, Inc. was trading
  at 27.29 per share. At that time, Microsoft was
  paying an annual dividend of 0.32 per share,
  which is double its 2003 dividend of 0.16 per
  share. If this trend is expected to continue,
  what is the required return on Microsoft?

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Problem 5