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)?

A stock is expected to pay the following dividends:

Cash Flows of a Stock | ||||||

Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |

Dividend ($) | 0 | 6 | 12 | 18 | 20 | ... |

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.

What will be the price of the stock in 7 years (t = 7), just after the dividend at that time has been paid?

**Question 218** NPV, IRR, profitability index, average accounting return

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

Which one of the following will decrease net income (NI) but increase cash flow from assets (CFFA) in this year for a tax-paying firm, all else remaining constant?

Remember:

###NI = (Rev-COGS-FC-Depr-IntExp).(1-t_c )### ###CFFA=NI+Depr-CapEx - \Delta NWC+IntExp###A firm is considering a business project which costs $**11**m now and is expected to pay a constant $**1**m at the end of every year forever.

Assume that the initial $**11**m cost is funded using the firm's **existing cash** so no new equity or debt will be raised. The cost of capital is **10**% pa.

Which of the following statements about net present value (NPV), internal rate of return (IRR) and payback period is **NOT** correct?

A company can invest funds in a five year project at LIBOR plus **50** basis points pa. The five-year swap rate is **4**% pa. What fixed rate of interest can the company earn over the next five years by using the swap?

**Question 693** boot strapping zero coupon yield, forward interest rate, term structure of interest rates

Information about three risk free Government bonds is given in the table below.

Federal Treasury Bond Data |
||||

Maturity |
Yield to maturity |
Coupon rate |
Face value |
Price |

(years) | (pa, compounding semi-annually) | (pa, paid semi-annually) | ($) | ($) |

0.5 | 3% | 4% | 100 | 100.4926 |

1 | 4% | 4% | 100 | 100.0000 |

1.5 | 5% | 4% | 100 | 98.5720 |

Based on the above government bonds' yields to maturity, which of the below statements about the spot zero rates and forward zero rates is **NOT** correct?

**Question 872** duration, Macaulay duration, modified duration, portfolio duration

A fixed coupon bond’s **modified** duration is **20** years, and yields are currently **10**% pa compounded annually. Which of the following statements about the bond is **NOT** correct?