1) Complete Storage Company’s (CSC) common stock has a current dividend of $2.00 per share. The dividend is expected to grow at 40% annually for two years and then grow at 5% annually thereafter. The required rate of return is 14% What is the current price of a share of CSC common stock?
a) $40.66
b) $41.88
c) $42.33
d) $38.20
2) The dividend is expected to grow at 40% annually for two years and then grow at 5% annually thereafter. The required rate of return is 14%. Suppose you purchase 100 shares of CSC’s stock at its current market value. You collect the dividend paid in year 1, year 2, and year 3. At the end of year 3, you then sell the shares for $48 per share. What is your holding period return? What annual rate of return did you effectively earn on your investment?
a) HPR 44.71%; EAR 10.40%
b) HPR 44.71%; EAR 13.11%
c) HPR 40.57%; EAR 12.77%
d) HPR 40.57%; EAR 15.58%