Based upon the Gordon Growth Model, calculate the anticipated market price of a stock that is paying dividends at a constant growth rate of 6.25%, with a recent dividend of $1.00, and a required return rate of 15%.

There are 3 excel attachments that need to be completed in addition to these 3 questions

 

Your response should be at least 200 words in length.

 

1. Based upon the Gordon Growth Model, calculate the anticipated market price of a stock that is paying dividends at a constant growth rate of 6.25%, with a recent dividend of $1.00, and a required return rate of 15%. (Show all work/calculations/formulas.)

You would like to consider purchasing a stock that is selling for $90 and pays $2.33 a year in dividends. It is predicted that the stock is going to sell for $114 one year from now, and you would like to earn 15% on the investment. Should you purchase the stock today- based upon the One-Period Valuation Model? And, what should the market price be today? (Show all work/calculations/formulas)

 

2. What are municipal bonds? We are comparing the equivalent tax-free rate of two investments: 1) A taxable corporate bond that is at a rate of 10%, with a marginal tax of 30%, and 2) A tax-free municipal bond that is at a rate of 8%. Which of the two investments offers a better return considering the tax impact? (Show all work/calculations/formulas.)

 

3. What is a “stock certificate”? What rights and privileges are offered based upon the type of stock?

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