1. Assume IBM is expected to pay a total cash dividend of $3.9 next year and dividends are expected to grow indefinitely by 3 percent a year. Assume the required rate of return (i.e. equity holder's opportunity cost of capital) is 9.3 percent. Assuming this is the best information available regarding the future of this firm, what would be the most economically rational value of the stock today (i.e. today's "price")? Answer to 2 decimal places.
2. Someone offers to sell to you a financial contract that will pay $90 at the end of each year for the next five years, plus an additional $1000 at the end of the fifth year. If they will sell the contract for $900, what rate of return are they offering on the investment?

7.7%

9.6%

11.8%

10.3%

52.6% = ((90*5+1000)/950 -1)

insufficient information to estimate a return rate

3. What is the present value (aka price) of a 29-year, pure discount bond (zero coupon bond) that pays $1000 at maturity if it is priced to yield 8.4% per year (YTM)? Answer to 2 decimal places.