Question
1. Explain the following key terms: Capital rationing Dividend discount model plowback ratio Par value, face value, maturity value nominal interest rate Statement of cash
1. Explain the following key terms:
Capital rationing Dividend discount model plowback ratio
Par value, face value, maturity value nominal interest rate
Statement of cash flows
5. Consider the following cashflow stream and a bank account paying 3% annual interest. What is the present value? Is the account value ever negative?
Year Cashflow
0 8
1 2
2 4
3 -15
4 16
6. Consider a 30-year mortgage with a 5% interest rate and a 20% down payment. If you can afford a $1000 monthly payment, how expensive a house can you buy? How large is the down payment?
7.What is the effective annual interest rate in each situation?
a. A savings account with 4% annual interest rate compounded daily (assume a year consists of 365
days)?
b. A savings account with 4% annual interest rate compounded monthly?
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