solution of sample exam2

# solution of sample exam2 - r = 11 Otherwise ﬁnd r = d 1 P...

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ECONOMICS 389 – Solution to the Sample EXAM #2 Spring 2010 1 Multiple Choice 1. c 2. a 3. a 4. a 5. c 6. c 2 Problems 1. 57 d 0 = 1 . 0 , r = 0 . 10 , g = 0 . 10 for years 1, 2, 3; g = 0 . 08 from year 4 d 1 = 1 . 10 × d 0 = 1 . 10 , d 2 = 1 . 1 × d 1 = 1 . 21 , d 3 = 1 . 1 × d 2 = 1 . 331 d 4 = 1 . 08 × d 3 = 1 . 4375, so with constant growth, P 3 = d 4 / ( r - g ) = 71 . 874 P 0 = d 1 / (1+ r )+ d 2 / (1+ r )2+ d 3 / (1+ r )3+ P 3 / (1+ r )3 = 1+1+1+54 = 57 2. a. 3.2 b. 0.03 c. 3.296 d. 41.2 PV = DIV 1 r - g = 3 . 296 8% = 41 . 2 e. 4.811 if payoutratio = 0 , PV = 4 11% = 36 . 364, so PV GO = 41 . 2 - 36 . 36 = 4 . 84 1

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f. 10.294 P/Eratio = 41 . 2 4 = 10 . 3 g. Note: it is suﬃcient to observe that the rate of return must be
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Unformatted text preview: r = . 11. Otherwise ﬁnd r = ( d 1 + P 1-P 0) /P , withP 1 = d 2 / ( r-g ) = (1 + g ) d 1 / ( r-g ) = (1 . 03 x 3 . 296) / (0 . 11-. 03) = 42 . 436; so r = (3 . 296 + 42 . 436-41 . 20) / 41 . 20 = 4 . 532 / 41 . 20 = 0 . 11 3. 100 P = DIV 1 + P 1 (1 + r ) = 5 + 105 1 . 1 = 100 4. P = DIV 1 r = 25 . 2 = 125 5. a. 2.2 b. 57 PV = 2 + 2 . 2 1 . 12 + 2 . 2 × 1 . 08 . 04 × 1 . 12 = 57 2...
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## This note was uploaded on 04/13/2010 for the course ECO 389 taught by Professor Chen,j during the Spring '08 term at SUNY Stony Brook.

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solution of sample exam2 - r = 11 Otherwise ﬁnd r = d 1 P...

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