A share just paid its semi-annual dividend of $10. The dividend is expected to grow at 2% every 6 months forever. This 2% growth rate is an effective 6 month rate. Therefore the next dividend will be $10.20 in six months. The required return of the stock is 10% pa, given as an effective annual rate.

What is the price of the share now?

The following is the Dividend Discount Model used to price stocks:

### p_0=\frac{d_1}{r-g} ###

Which of the following statements about the Dividend Discount Model is **NOT** correct?

In the dividend discount model:

### P_0= \frac{d_1}{r-g} ###

The pronumeral ##g## is supposed to be the:

**Question 488** income and capital returns, payout policy, payout ratio, DDM

Two companies BigDiv and ZeroDiv are exactly the same except for their dividend payouts.

BigDiv pays large dividends and ZeroDiv doesn't pay any dividends.

Currently the two firms have the same earnings, assets, number of shares, share price, expected total return and risk.

Assume a perfect world with no taxes, no transaction costs, no asymmetric information and that all assets including business projects are fairly priced and therefore zero-NPV.

All things remaining equal, which of the following statements is **NOT** correct?

**Question 513** stock split, reverse stock split, stock dividend, bonus issue, rights issue

Which of the following statements is **NOT** correct?

**Question 522** income and capital returns, real and nominal returns and cash flows, inflation, real estate

A residential investment property has an expected nominal total return of **6**% pa and nominal capital return of **2.5**% pa. Inflation is expected to be **2.5**% pa.

All of the above are effective **nominal** rates and investors believe that they will stay the same in perpetuity.

What are the property's expected **real** total, capital and income returns?

The answer choices below are given in the same order.

A home loan company advertises an interest rate of 6% pa, payable monthly. Which of the following statements about the interest rate is **NOT** correct? All rates are given to four decimal places.

To value a business's assets, the free cash flow of the firm (FCFF, also called CFFA) needs to be calculated. This requires figures from the firm's income statement and balance sheet. For what figures is the balance sheet needed? Note that the balance sheet is sometimes also called the statement of financial position.

A trader **buys** one crude oil European style **put** option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:

If a variable, say X, is **normally** distributed with mean ##\mu## and variance ##\sigma^2## then mathematicians write ##X \sim \mathcal{N}(\mu, \sigma^2)##.

If a variable, say Y, is **log-normally** distributed and the underlying normal distribution has mean ##\mu## and variance ##\sigma^2## then mathematicians write ## Y \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##.

The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue.

Select the most correct statement: