1.

Flipflops Unlimited has a dividend policy which is a bit weird. It has just paid a per-share dividend in the amount of $7. It also has just posted on its website that from now on it is planning to increase the dividend per share by $6 for the next five years, each year, and that it will then not pay any more dividends. Ever. If you decide to buy shares of stock from Flipflops Unlimited, based on the company's risk you will require an annual return of 14 percent. What would be a fair price to pay for each share of the company's stock if you wanted to buy it today?

2.

In the United States, a common practice for corporate bonds is to pay coupon payments semiannually. However, this is not always the case for bonds sold in other parts of the world: annual coupon payments are common in some countries. Let's say, there is an Italian company that sells a bond which has a par value of 1,000, 20 years until the bond matures, and a 7.4 percent annual coupon rate on its annually paid coupons. The yield to maturity on these italian bonds is 8.5 percent. Calculate the current value of each of these bonds.

3. You have just won money from your lucky lottery ticket! According to the lottery's rules, you will be paid $2,420,000 today, and in the future you will collect 40 payments in the amount of $1,210,000 each. These payments to you will begin one year from today. You will be receiving them every six months. Someone from Investments R Us has offered you to buy all the payments from you for $25 million right now. You are wondering if you should just accept it or not, but that depends on how much the lottery payments are worth right now! Here is some additional information on the lottery winnings: The annual rate of return on the lottery payments is 9 percent, compounded daily. Assume 12 months in a year, and 30 days in each month. Calculate the present value.