Explain computation of value of shares

Assignment Help Finance Basics

Reference no: EM1311608

Computation of value of shares

To invest your year-end bonus, you are considering three investment opportunities, imaginatively named Security A, Security B, and Security C. Security A is expected to pay $100 a year for the first 5 years, $400 a year for the next 10 years, and nothing after that. B is expected to pay $300 a year for the first 8 years, $200 a year for the next 7 years, and nothing thereafter. Security C is expected to pay a growing amount every year forever. Starting next year, security C will pay $150 and that amount will grow at a 2% per year. The expected return for the three investments is 10%.

(a) If all the three securities were traded on a market, what would be their market prices?

(b) If all the three securities are trading at the market prices calculated above, which investment do you prefer? Explain.

(c) What will happen to the expected return if investors suddenly become less conservative and more willing to bear risk? What would happen to stock prices if this occurred? Could this be a reason for the 204 points rise in Dow yesterday? Explain.

Reference no: EM1311608

Questions Cloud

Computation of weighted average cost of capital : Computation of weighted average cost of capital and construct a pro forma balance sheet that indicates the firm's optimal capital structure

Notes on interest rate and aggregate supply : Provide brief but theoretically sound explanation for each of the following.

Slow growth model : Your company is considering expanding overseas. It is particulary interested in developing markets, and narrowed its choice down to two countries, A and B.

Determining relative frequency and cumulative frequencies : Determine relative frequency of X=4? Generate the cumulative frequencies.

Explain computation of value of shares : Explain computation of value of shares and what will happen to the expected return if investors suddenly become less conservative and more willing to bear risk

Calculating money multiplier and nominal values of deposits : What is the value of the money multiplier? What is the value of the nomial money supply? What are the nominal values of deposits, currency and reserves?

Null-alternative hypotheses : State the null and alternative hypotheses you would use to test whether the year-end bonuses paid by Jones & Ryan were different from the population mean.

How much would the bracelet cost : Using the plantwide rate, how much would the bracelet cost and Using activity-based costing, how much would the bracelet cost?

Computation of bond valuation : Computation of bond valuation and How many bonds have to offer to you for each share of preferred stock

User Account

All Pages