Question

# 1. A stock sells for $2000, pays $30 in dividends and grows at 2% annually.

a. What is the

interest rate?

b. If the Risk-free rate is 2%, what is the risk premium?

2. Compute the price of share of stock that pays a dividend of $2 per year, assuming that you will sell it for $30 after two years and you require 12% return.

3. A stock paid $4 dividends last year, the dividends grow by 10% annually. What would you be willing to pay for it today, assuming that you will hold it forever and you require 15% return?

4. If a stock pays $20 in dividends the grows at 2.5% annually and the interest rate s 4.5%, what would you be willing to pay for the stock? Is that your maximum or minimum?

5. You expect a stock to sell for $100 after two years and pay $20 in dividends each year. What would you pay for it today if the interest rate is 4%?

6. Compute the price of share of stock that pays a dividend of $2 per year, assuming that you will sell it for $30 after two years and you require 12% return.

7. A stock paid $4 dividends last year, the dividends grow by 10% annually. What would you be willing to pay for it today? Assuming that you will hold it forever. Interest rate is 12.

8. To how much would an investment of $2000 grow in five years if the return was 12% annually?

9. What is the present Value of a lump sum of $3000 awarded after 5 years if the interest rate was 12% annually?

10. How long would it take for $2000 to grow to 3000 if the return rate was 12% annually?

11. What return rate is required for $2000 to grow to $25000 in five years/

12. An investment of $10000 returns $3000 every year for the next five years. What is the internal rate of return?

13. What maximum price would you be willing to pay for a bond with a $100 annual coupon that sells for $800 after five years. The interest rate is 12%?

14. What does it mean to say the market is efficient? More than one meaning.

15. What are the bond risks? What are the stock risks?

16. Why is having a developed financial market beneficial to the economy?

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