For a price of $13, Carla will sell you a share paying a dividend of $1 in one year and every year after that forever. The required return of the stock is 10% pa.
Question 69 interest tax shield, capital structure, leverage, WACC
Which statement about risk, required return and capital structure is the most correct?
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 8 | 8 | 8 | 20 | 8 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. Note that the $8 dividend at time zero is about to be paid tonight.
What is the current price of the stock?
Question 624 franking credit, personal tax on dividends, imputation tax system, no explanation
Which of the following statements about Australian franking credits is NOT correct? Franking credits:
An equity index fund manager controls a USD1 billion diversified equity portfolio with a beta of 1.3. The equity manager fears that a global recession will begin in the next year, causing equity prices to tumble. The market does not think that this will happen. If the fund manager wishes to reduce her portfolio beta to 0.5, how many S&P500 futures should she sell?
The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at 2,062 points and the spot price is 2,091 points. Each point is worth $250. How many one year S&P500 futures contracts should the fund manager sell?
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:
Question 823 option, option payoff at maturity, option profit, no explanation
A European call option should only be exercised if:
Question 881 Nixon Shock, Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
In the ‘Nixon Shock’ on August 15, 1971, the United States government: