Reference no: EM132417234

1. Rover Corporation is expected to pay no dividends for first five years. For next 7 years the firms expected dividends are $10, $16, $22, $29, $36, $40 and $50 respectively. Afterwards the forms dividends are expected to grow at 6% per year forever. If your expected return is 18%, determine the value of Rover's stock today.
2. Laurel and Hardy are twins and both work at the Berea BMV. They decide to save for retirement, which is 35 years away. They will both receive an 8% annual return on their investments over the next 35 years. Laurel invest $2,000 per year at the end of each year only for the first 10 years of the 35 year period. Hardy doesn't start saving for 10 years, and then invest $2,000 per year for the remaining 25 years. How much will each of them have when they retire? What is the lesson here?
3. Assume, Disney Preferred stocks pays a dividend of $40 each year. If your required return is 16%, what is the maximum you should pay for this stock?
4. Peter Lynchpin wants to sell you an investment contract that pays equal $16,500 amounts at the end of each year for the next 20 years. If you require an effective annual return (EAR) of 8% on this investment, how much will you pay for the contract today?
5. Angel Inc just paid a dividend of $3.50 per share on its stock. The dividends are expected to grow at a constant rate of 3.6% per year. If the required rate of return is 11.6%, what is current price?
6. A bond has 20 years to mature, a face value of $1,000 and pays 7% semi-annual coupons. It sells for $867. You bought the bond this morning. Two hours later, interest went down by 2% and you sold the bond. What is the percentage loss or gain realized by you?
7. Congratulations! You got a job. You plan to make a deposit of 300$ each month into a 401-k account that pays interest at 12% compounded monthly. The firm matches it at 100% and deposits the money annually. How much money do you expect to have in the 401-k account in 15 years?
8. James Corporation has just issued a new series of corporate bonds called Marvel. You buy it today for $1,111. Marvel has a face value of $1,000, matures in 25 years and pays 12% quarterly coupon. You keep the bond for 7 years and sell it to Tony Stark when YTM is 6%. How much profit/loss did you make?