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A. An asset yields the following year-end cash flows: $8,000 per year for years 1-3; $10,000 per year for years 4-7; $12,000 per year for years 8-15; $15,000 per year for years 16-20; and then $30,000 per year from year 21 forever. Use a discount rate of 12 percent per year to determine the present value of these cash flows.

B. McNoll Inc just paid a $1 per share dividend. Dividends are expected to increase by 15% annually the next two years and 5% annually forever thereafter. The firms cost of equity capital is 10 %. What is the most you would pay for one share of this stock?

C. OIL Drilling Inc expects to pay dividends of $2, $1.5, $2.5, $3.5 at time t=1, t=2, t=3, and t=4 respectively. Dividends are then expected to grow at a constant rate of 8% per year forever. Due to a major hit in the Alaska Arctic region, they also paid a one time extraordinary dividend of $10 yesterday. Shareholders are ecstatic and like the companys prospects. If you have a required rate of return of 14% how much would you pay for the stock?

D. The common stock of Uncle Georgies Rib Shack just paid a $1 dividend. Uncle George eats his own cooking and is convinced he can increase operating cash flows each year. The dividend is expected to grow at a constant rate forever according to the Wall Street Analyst community. Other similar Rib Shack style restaurants have an equity cost of capital of 11 %. Trading of the stock takes place on NASDAQ and is currently trading at $21.20. What is the expected growth rate in dividends?

E. A $1,000 par value bond sells for $1,092. It matures in 20 years, has a 10 percent coupon rate, and pays interest semi-annually. What is the bonds yield to maturity?

F. Chicago Corp. is considering the issue of $1,000 face value, 20 year, 8 percent coupon bonds. The bonds will make coupon payments on a semi-annual basis. Chicago Corp. observes that bonds of Barrett Company are trading at $1,196.36, have the same maturity date and pay an annual coupon of 10 percent. If the two bonds are expected to be similar in risk, what price will a bond of Chicago Corp. sell for?

G. A $1,000 par value bond has coupon rate of 7% and the coupon is paid annually. The bond matures in 20 years and has a required rate of return of 10%. Compute the current price of this bond.

H. Ten years ago, Stackelberg Inc. issued 20-year zero coupon bonds at a price of $550. The current price of the bonds is $400. What is the current market discount rate for the bonds?

I. A firm just paid a dividend of $8.00 on its stock, and dividend is expected to grow at a constant rate forever. The price of this stock is $120 and the investors required rate of return is 10%. What is the growth rate expected by the market in the dividend stream?

J. Bertrand Inc. just paid dividend of $2.00 for its stocks. The dividend stream from the stocks is expected to grow at an annual rate of 30% for the next 2 years, after which growth will return to the normal constant growth rate of 6%. If the required rate of return on stocks of this risk class is 20%, what is the price of the stock today?

K. An investment opportunity will yield $8,000 at the end of one year. If your required rate of return is 8% p.a., then the maximum price that you should be willing to pay for this investment opportunity today is $_.

L. You are offered a fixed annual payment of $285 starting one year from today and continuing yearly until forever. If the discount rate is 7% p.a., then the value today of these cash flows is $?

M. A fixed coupon bond which has 20 years left until maturity has a coupon rate of 6.0% paid semi-annually. If the yield of this bond is 6.3%, the bonds price is $_________. Par value is $1,000.

N. A fixed coupon bond with 12 years left until maturity has a coupon rate of 7% paid annually. If the price of the bond is $1,070, its annual yield is _______%. Par value is $1,000.

O. A fixed coupon bond with 10 years left until maturity and a coupon that is paid semi-annually is currently trading at a yield of 6%. If the price of the bond is $1,148.77, then the coupon rate is ____%. Par value is $1,000.

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