2. Assume yourself buying a car insurance which can get renewed on annual basis. Now, think generally, can this case be considered as an option? If yes, then which type? (2 marks) 3. Can we say that short positions loss and long positions gain is equal? Explain. (3 marks) Numerical Questions Question 1 (5 marks) A company is anticipated to grow at 30% for the next five years. After that, competition in the market is estimated to reduce the companys growth to a constant 7% for forever. Company just paid a dividend of $2.50 per share. The risk-free rate is 5% and the market risk premium is 6%. Please note that the beta of this stock is 1.2. Calculate the current stock value of this company? Question 2 (2 marks) A pharmaceutical company pays a dividend of $3 per share, that is not anticipated to change. You as an investor needs a rate of return of 25%. Calculate the intrinsic price. Question 3 (4 marks) ABC is anticipated to earn $2.50 per share in the coming year. The companys payout ratio is 35%. Both dividends and earnings have been mounting at a constant rate of 10% per year. But analysts have estimated that growth rate will be 8% every year for indefinite time period. The required rate is 16%. What is its projected price? Question 4 (4 marks) Suppose the current market price of Pc Corp. is $50. And it pays a dividend of $2. If dividends are expected to become double in eight years. What would be the required rate of return for such stock. Question 5 (5 marks) Using the information below, please answer the following questions As an analyst you are estimating the P/E ratio using the DDM. Since the economy has slowed down for the last five years, you anticipate that dividend-payout ratio would be 55%. The rate of long-term govt. bonds is 6%. The risk premium is anticipated to be 3%. And the return on equity is forecasted to be 11%. and the equity risk premium is estimated to be 3%. a) What would be the growth rate, g? b) What do you expect the market P/E ratio to be? Question 6 (7 marks) A companys free cash flows are given as: Year 1 = $4000 Year 2 = $5000 Year 3 = $6000 An expert analysis shows that after 3 years (t=3), the free cash flow of the company will grow at a constant rate of 7% per year. The expert evaluates that the weighted average cost of capital of the company is 11%. Also, the total market value of debt and preferred stock of the company is $30,000. Outstanding shares of common stock are 1000. Calculate the intrinsic value per share of the common stock of the company. Question 7 (2 marks) A bond paying semiannual interest is priced at $943.52. It has a semiannual coupon payment of $30.00. What is the current yield? (Assume the par value of such bond is $1000). Question 8 (3 marks) A manufacturing company just issued a bond with a face value of $1000, 8% coupon rate. The bond has a life of 20 years paying coupons annually, and a yield to maturity is 7.5%, what will be the selling price of the bond? Question 9 (4 marks) There is a 12 percent coupon bond with 20 years to maturity. The current selling price of the bond is 22% less than the par value of the bond. Calculate its YTM. Question 10 (4 marks) A company issued a 12-year, 6 percent coupon bond is called in five years at a price of $1040. The bond currently sells for $1065. The yield to call is? Question 11 (7 marks) Determine the Geometric mean, Cumulative Wealth Index of the following date set. Also calculate the standard deviation. Year (t) Dividends (Dt) (PRs.) Year-end Price (Pt) (PRs.) 2011 4.88 76.70 2012 5.44 66.30 2013 4.44 69.60 2014 4.44 58.60 2015 4.44 99.30 Question 12 (3 marks) A company is experiencing a rapid growth rate. The last dividend, D0, $2.00 is anticipated to continue growing at 30% for the next 2 years. After this year, companys growth is expected to slow down and now the dividends are growing at a rate of 20% for the next 4 years. After that, growth rate is expected