# u03a2

#### Introduction

Companies can raise money through common stocks. Investors buy stocks and get the benefits of ownership of a firm. How to price stocks is the main objective of this assignment, in which you will learn about the differences between common and preferred stocks, the different stock valuation models, and the major stock market indexes.

#### Instructions

Answer the following questions and complete the following problems, as applicable:

You may solve the following problems algebraically, or you may use a financial calculator or Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas.

1. “As owners, what rights and advantages do shareholders obtain” (Cornett, Adair, & Nofsinger, 2014, p. 203)?
2. “Why might the Standard and Poor’s 500 Index be a better measure of stock market performance than the Dow Jones Industrial Average” (Cornett, Adair, & Nofsinger, 2014)?
3. “What are the differences between common stock and preferred stock” (Cornett, Adair, & Nofsinger, 2014, p. 203)?
4. “On March 14, 2013, the Dow Jones Industrial Average set a new high. The index closed at 14,539.14, which was up 83.86 points from the previous day’s close of 14.455.28. What was the return (in percent to four decimal places) of the stock market for March 14, 2013” (Cornett, Adair, & Nofsinger, 2014)?
5. “At your brokerage firm, it costs \$9.50 per stock trade. How much money do you need to buy 300 shares of Time Warner, Inc. (TWX), which trades at \$22.62” (Cornett, Adair, & Nofsinger, 2014)?
6. “Financial analysts forecast Safeco Corporation (SAF) growth for the future to be a constant 10 percent. Safeco’s recent dividend was \$1.20. What is the value of Safeco stock when the required return is 12 percent” (Cornett, Adair, & Nofsinger, 2014, p. 205)?
7. “A preferred stock from Duquesne Light Company (DQUPRA) pays \$2.10 in annual dividends. If the required return on the preferred stock is 5.4 percent, what is the value of the stock” (Cornett, Adair, & Nofsinger, 2014, p. 204)?
8. “Ultra Petroleum (UPL) has earnings per share of \$1.56 and a P/E ratio of 32.48. What is the stock price” (Cornett, Adair, & Nofsinger, 2014, p. 205)?

Submit your completed assignment as an attachment in the assignment area. You may use either a Word document or an Excel spreadsheet for your work, but not both. Prior to submitting your assignment, review the Valuing Stocks Scoring Guide to ensure you have met all of the requirements and as a self-assessment of your work.

##### Reference

Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). M: Finance (2nd ed.). New York, NY: McGraw-Hill.