Question
1. You purchase an investment which will pay you $10,000 in real dollars per year for the next three years. Each payment will be received
1. You purchase an investment which will pay you $10,000 in real dollars per year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 6.5% and the inflation rate is 2.2%. What is the present value of these payments
2. An investment offers a 13.6% total return over the coming year. You think the total real return on this investment will be 4.9%. What is the expected inflation rate over the next year?
3. Floyd Industries stock has a beta of 0.7. The company just paid a dividend of $0.96, and the dividends are expected to grow at 4 %. The expected return of the market is 10%, and Treasury bills are yielding 4%. The most recent stock price for Floyd is $66.
Calculate the cost of equity using the DDM method.
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