Note: In responding to "WHY/Explain" you should NAME________________________________ Also write

give a meaningful explanation that would convince a skeptic. your name on

the back.
FOSTER SCHOOL OF BUSINESS
FINANCE 350 A QUIZ #3 PROF. JARRAD HARFORD

1. You just bought a stock with a P/E ratio of 9. This year it has earnings per share (EPS) of $5. Its next
dividend is due in one year, when you expect EPS of $5.50 and a payout ratio of 20%. If you sell it right after
receiving the dividend, and its P/E ratio is still 9, what will your return (in %) be? [2]

2. The last 3 months of returns for stock A are the following:

1 2 3
a. What is the standard deviation of the stock’s returns? [1]
-4% 12% 1%

b. If returns are normally distributed, what is the range of returns within which you are 95% confident next
month’s return will fall? [1]

3. The dividends for stock B are expected to be: 0 1 2 3 4 5…

If its discount rate is 11%, what should its price be at 0 0 1.00 1.50 2.00 Grow at 5% per year
time 0? [2]

R1 + R2 + ...RT DIV1 DIV2 DIV3 DIV4 Div + ( P1 − P0 ) CF1

=
E[ R] =P0 + + + + ⋅⋅⋅ =R =
PV
T (1 + rcs ) (1+ rcs ) (1+ rcs ) (1+ rcs )
2 3 4
P0 r−g
( R1 − R ) 2 + ( R2 − R ) 2 + ... + ( RT − R ) 2
s p2 = wA2s A2 + wB2s B2 + 2wA wBs As B r AB R ± 2s s2 =
T −1
Note: In responding to "WHY/Explain" you should NAME________________________________
give a meaningful explanation that would convince a skeptic.