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1. Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3); its beta is 0.8; the risk-free rate is 5.2%; and the market risk premiums 6%. The dividend is expected to grow at some constant rate g; and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is P3)?
2. What is the required rate of return on a preferred stock with a $50 par value, a stated annual dividend of 7% of par, and a current market price of (a) $30, (b), $40, (c) $50, and (d) $70 (assume the market is in equilibrium with the required return equal to the expected return)?
Part 1Dividend per share DBetaRisk free rate RfMarket risk premium Rm-RfCost of equity of KStock price SGrowth rate g Growth RateStock price after 3 years 30.85.20%6%10.00%Rf$40.00 +…
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