Chapter 7
5. King Waterbeds has an annual cash dividend policy that raises the dividend each year
by 4 %. Last year’ s dividend was $ 0.40 per share. What is the price of this stock if
a. an investor wants a 5 % return? b. an investor wants an 8 % return? c. an investor wants a 10 % return? d. an investor wants a 13 % return? e. an investor wants a 20 % return?
15. Using Yahoo! Finance( http:// finance. yahoo. com /) and ticker symbol PEP, find
PepsiCo’ s historical dividend payment and current price. Historical dividends are available in the historical price section. Use these payments to find the annual
dividend growth rate.( If you have a quarterly pattern be sure to annualize this
quarterly growth rate.) Now, find the required rate of return for this stock, assuming
that the future dividend growth rate will remain the same and the company has an
infinite horizon. Does this return seem reasonable for PepsiCo?