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1. The earnings, dividends, and stock price of Talukdar Technologies Inc. are expected to grow at 7 percent per year in the future. Talukdar’s last dividend was
$2.00, the stock beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent.
a. Compute Talukdar’s theoretical stock price.
b. Given your conclusion about the theoretical stock price of Talukdar Technologies stock price, do you (or should you) have any reservations about the
validity of your conclusion? Explain.
2. Suppose a particular stock has a higher price than what it normally should be in market equilibrium. Explain the process by which the stock price will
adjust in an efficient market so that it will be correctly priced.
