Question
1.) If an investor earns 3 percent on an investment in an asset with four months to maturity, what is the 4-month eective rate of
1.) If an investor earns 3 percent on an investment in an asset with four months to maturity, what is the 4-month eective rate of return or yield?What is the annual eective rate of return on this bond (assuming 12 months per year)?
2.)You are considering the purchase of a stock that will make annual payments of$2.60 per year for the next three years.At the end of the fourth year, you believe that you will be able to sell your stock for$33.00, just before the year-end dividend payment is made.How much would you be willing to pay for the stock now if the fair rate of return is 13 percent?
3.)A rm currently pays no dividend but is expected to pay a dividend at the end of Year 3. Year 3 earnings are expected to be$1.84, and the rm will maintain a payout ratio of 60%. Assuming a constant growth rate of 5% and a required rate of return of 12%, estimate the current value of this stock.
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