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 ?