For a price of $100, Carol will sell you a 5 year bond paying semi-annual coupons of 16% pa. The face value of the bond is $100. Other bonds with similar risk, maturity and coupon characteristics trade at a yield of 12% pa.
A stock is expected to pay the following dividends:
| Cash Flows of a Stock | ||||||
| Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
| Dividend ($) | 0.00 | 1.00 | 1.05 | 1.10 | 1.15 | ... |
After year 4, the annual dividend will grow in perpetuity at 5% pa, so;
- the dividend at t=5 will be $1.15(1+0.05),
- the dividend at t=6 will be $1.15(1+0.05)^2, and so on.
The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What will be the price of the stock in three and a half years (t = 3.5)?
Question 446 working capital decision, corporate financial decision theory
The working capital decision primarily affects which part of a business?
A young lady is trying to decide if she should attend university or not.
The young lady's parents say that she must attend university because otherwise all of her hard work studying and attending school during her childhood was a waste.
What's the correct way to classify this item from a capital budgeting perspective when trying to decide whether to attend university?
The hard work studying at school in her childhood should be classified as:
The following cash flows are expected:
- 10 yearly payments of $80, with the first payment in 6.5 years from now (first payment at t=6.5).
- A single payment of $500 in 4 years and 3 months (t=4.25) from now.
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
Question 577 inflation, real and nominal returns and cash flows
What is the present value of a real payment of $500 in 2 years? The nominal discount rate is 7% pa and the inflation rate is 4% pa.
In general, stock prices tend to rise. What does this mean for futures on equity?
Question 703 utility, risk aversion, utility function, gamble
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Each person has $500 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $500. Each player can flip a coin and if they flip heads, they receive $500. If they flip tails then they will lose $500. Which of the following statements is NOT correct?
The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue. Let ##P_1## be the unknown price of a stock in one year. ##P_1## is a random variable. Let ##P_0 = 1##, so the share price now is $1. This one dollar is a constant, it is not a variable.
Which of the below statements is NOT correct? Financial practitioners commonly assume that the shape of the PDF represented in the colour:
A firm conducts a two-for-one stock split. Which of the following consequences would NOT be expected?