Fight Finance

The following equation is called the Dividend Discount Model (DDM), Gordon Growth Model or the perpetuity with growth formula: ### P_0 = \frac{ C_1 }{ r - g } ###

What is ##g##? The value ##g## is the long term expected:

A wholesale glass importer offers credit to its customers. Customers are given 30 days to pay for their goods, but if they pay within 5 days they will get a 1% discount.

What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay on either the 5th day or the 30th day. All rates given below are effective annual rates.

A project has an internal rate of return (IRR) which is greater than its required return. Select the most correct statement.

A stock is expected to pay the following dividends:

After year 4, the dividend will grow in perpetuity at 5% pa. The required return of the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.

If all of the dividends since time period zero were deposited into a bank account yielding 8% pa as an effective annual rate, how much money will be in the bank account in 2.5 years (in other words, at t=2.5)?

Which one of the following bonds is trading at a premium?

An 'interest only' loan can also be called a:

You have $100,000 in the bank. The bank pays interest at 10% pa, given as an effective annual rate.

You wish to consume an equal amount now (t=0) and in one year (t=1) and have nothing left in the bank at the end (t=1).

How much can you consume at each time?

Find the sample standard deviation of returns using the data in the table:

The returns above and standard deviations below are given in decimal form.

In the dividend discount model:

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

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

A continuously compounded monthly return of 1% ##(r_\text{cc monthly})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of: