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 firm's weighted average cost of capital before tax (##r_\text{WACC before tax}##) would increase due to:
A text book publisher is thinking of asking some teachers to write a new textbook at a cost of $100,000, payable now. The book would be written, printed and ready to sell to students in 2 years. It will be ready just before semester begins.
A cash flow of $100 would be made from each book sold, after all costs such as printing and delivery. There are 600 students per semester. Assume that every student buys a new text book. Remember that there are 2 semesters per year and students buy text books at the beginning of the semester.
Assume that text book publishers will sell the books at the same price forever and that the number of students is constant.
If the discount rate is 8% pa, given as an effective annual rate, what is the NPV of the project?
A stock is expected to pay a dividend of $15 in one year (t=1), then $25 for 9 years after that (payments at t=2 ,3,...10), and on the 11th year (t=11) the dividend will be 2% less than at t=10, and will continue to shrink at the same rate every year after that forever. The required return of the stock is 10%. All rates are effective annual rates.
What is the price of the stock now?
The following cash flows are expected:
- 10 yearly payments of $80, with the first payment in 6.5 years from now (first payment at t=6.5).
- A single payment of $500 in 4 years and 3 months (t=4.25) from now.
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
"Buy low, sell high" is a phrase commonly heard in financial markets. It states that traders should try to buy assets at low prices and sell at high prices.
Traders in the fixed-coupon bond markets often quote promised bond yields rather than prices. Fixed-coupon bond traders should try to:
A trader sells one crude oil futures contract on the CME expiring in one year with a locked-in futures price of $38.94 per barrel. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before expiry then in one year she will have the:
A stock's total standard deviation of returns is 20% pa. The market portfolio's total standard deviation of returns is 15% pa. The beta of the stock is 0.8.
What is the stock's diversifiable standard deviation?
Question 664 real and nominal returns and cash flows, inflation, no explanation
What is the present value of real payments of $100 every year forever, with the first payment in one year? The nominal discount rate is 7% pa and the inflation rate is 4% pa.
Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?
