1) A company is expected to pay a dividend of $3.25 per share next year (t=1) and the dividend is expected to grow at a constant rate forever. The stock is currently selling for $42. If the required rate of return is 10 percent, what is the dividend growth rate? Please express the result as a percentage and keep two digits after the decimal point (e.g. 12.34% or 1.23%). 2.A 6.25 percent coupon bond (par value=$1,000) with 16 years left to maturity is offered for sale at $1,015.25. What is the yield to maturity of the bond? (Assume interest payments are semiannual.) Note: Please express the result as a percentage and keep two digits after the decimal point (e.g. 12.34% or 1.23%). 3. A company has a current market value of $65 per share with earnings per share of $4.32. What is the net present value of its growth opportunities if the required rate of return is 8 percent?

1.Dividend growth rate is 2.26%

2.Yield to maturity is 6.10%

3.Present value of growth opportunities is $11.0

Step-by-step explanation

1.Dividend growth rate is computed using the equation given below:

Growth rate = Required rate of return - {Expected dividend ÷ Current selling price}

                   = 10% - {$3.25 ÷ $42.0}

                   = 10% - 7.738%

                   = 2.262%

Hence, the dividend growth rate is 2.26%

2.

Face value = $1,000

Number of periods = 16 × 2 = 32

Semi-annual coupon payment = $1,000 × {6.25% ÷ 2} = $31.25

Current selling price = $1,015.25

Yield to maturity is computed using the excel equation given below:

Yield to maturity = RATE (NPER, PMT, -PV, FV)

                            = RATE (32, $31.25, -$1015.25, $1000)

                            = 3.05%

Annual yield to maturity is 6.10% {3.05% × 2}

3.Present value of growth opportunity (PVGO) is computed using the equation given below:

PVGO = Current stock price - {Earnings per share ÷ Required rate}

           = $65.0 - {$4.32 ÷ 8.0%}

           = $65.0 - $54.0

           = $11.00

  Hence, the present value of growth opportunity is $11.00