ABC stock sells for $150 per share, its last dividend was $3.00 per share

| February 25, 2017

Question
1) ABC stock sells for $150 per share, its last dividend was $3.00 per share, and its growth rate is 4%. What is the stock’s required rate of return?

2) A company’s 12-month trailing earnings per share [EPS] are $4.50, and the EPS are expected to grow 10% annually. If an investor is willing to pay a P/E multiple that is no higher than 2.5 times its growth rate, and the stock is currently selling at $100 per share, would this be an acceptable purchase price? Explain and support your answer with numbers.

3) If an equity security has $7.00 earnings per share [EPS] that are expected to remain stable in perpetuity, and expects to maintain a 100% payout ratio to shareholders, what is the value of the security if its required rate of return = 14%?

4)The expected return for Portfolio A is 10%, with a standard deviation of 1.2%. The expected return for Portfolio B is 25%, with a standard deviation of 3%. Is B riskier than A?

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