Reference no: EM133069399

1. An investment offers a 12.3% total return over the coming year. You think the total real return on this investment will be 5%. What is the expected inflation rate over the next year?

2. You purchase an investment that will pay you $7,000 in real dollars per year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 8.2% and the inflation rate is 2.1%. What is the present value of these payments?

3. The Gold Oil Co. wants to issue new 17-year bonds for some much-needed expansion projects. The company currently has 10.3% coupon bonds on the market that sell for $1,201, make semiannual payments, and mature in 17 years. The company should set what coupon rate on its new bonds if it wants them to sell at par? In other words, what is the pre-tax cost of debt to be used in the analysis of the expansion project?

4. Floyd Industries stock has a beta of 1.6. The company just paid a dividend of $0.89, and the dividends are expected to grow at 5 %. The expected return of the market is 10%, and Treasury bills are yielding 5.3%. The most recent stock price for Floyd is $63. Calculate the cost of equity using the DDM method.