The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
###P_0=\frac{d_1}{r-g}###
A stock pays dividends annually. It just paid a dividend, but the next dividend (##d_1##) will be paid in one year.
According to the DDM, what is the correct formula for the expected price of the stock in 2.5 years?
Which of the following statements about effective rates and annualised percentage rates (APR's) is NOT correct?
Question 433 Merton model of corporate debt, real option, option, no explanation
A risky firm will last for one period only (t=0 to 1), then it will be liquidated. So it's assets will be sold and the debt holders and equity holders will be paid out in that order. The firm has the following quantities:
##V## = Market value of assets.
##E## = Market value of (levered) equity.
##D## = Market value of zero coupon bonds.
##F_1## = Total face value of zero coupon bonds which is promised to be paid in one year.
What is the payoff to equity holders at maturity, assuming that they keep their shares until maturity?
Estimate the French bank Societe Generale's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that EUR is the euro, the European monetary union's currency.
- The 4 major European banks Credit Agricole (ACA), Deutsche Bank AG (DBK), UniCredit (UCG) and Banco Santander (SAN) are comparable companies to Societe Generale (GLE);
- Societe Generale's (GLE's) historical earnings per share (EPS) is EUR 2.92;
- ACA's backward-looking PE ratio is 16.29 and historical EPS is EUR 0.84;
- DBK's backward-looking PE ratio is 25.01 and historical EPS is EUR 1.26;
- SAN's backward-looking PE ratio is 14.71 and historical EPS is EUR 0.47;
- UCG's backward-looking PE ratio is 15.78 and historical EPS is EUR 0.40;
Note: Figures sourced from Google Finance on 27 March 2015.
Question 578 inflation, real and nominal returns and cash flows
Which of the following statements about inflation is NOT correct?
A trader sells one crude oil European style call 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: