1. Common stock value-zero growth 2. Common stock value-constant growth. 3. Time Value

1.   Common stock value-zero growth - The company's class A stock has paid a dividened of $5.00 per share for the last 15 years.  Management expects to continue to pay at that rate for the forseeable future .  Sally Talbout purchased 100 shares of common stock 10 years ago at a time when the required rate of return for the stock was 16%.  She wants to sell her shares today.  The current required rate of returnfor the stock is 12%.  How much capital or loss will she have on her shares.


2. Common stock value-constant growth.  McCracken company common stock paid a dividend of $1.20 per share last year.  The company expects earnings and dividends to grow at a rate of 5% per year for the forseeable future.

a. What required rate of return for this stock would result in a price per share of $28?

b. If McCracken had both earnings and growth and dividened at a rate of 10% what required rate of return would result in a price per share of 28?

3. Time Value - Your rich uncle offers you a choice of one of the three following alternatives.   Assume that all present day investments can obtain a return or 8%  compounded semi-annually.
a.  $200,000 now or
b. $10,000 a year for 30 years
c. $150,000 at the end of 10 years and another $150, 000 at the end of 20 years