Assume you are considering a stock which oddly pays a dividend at the end of each year. Your required rate of return is 8%. The expected dividend at the end of year 1 is $5. In year 2, the dividend is expected to grow by 10%. The year after that, the dividend is expected to be up 12%. In year 4 and 5 it is expected to grow at 15%. (a) If your holding period for this stock is 5 years, what is the present value of dividends? (b) If stock price is currently $20 and is expected to go to $40 by year 5, what is the present value of the stock from the end of your holding period? (c) If as investor, you only want to purchase stocks when Mr. Market sells them at 70% of intrinsic value, then what is the most you will pay for this stock? Assuming Covered Interest Parity holds, and the forward foreign exchange rate for Dollars per Euro is 1.3252 and the domestic interest rate is 5% and the European interest rate is 3%. (a) What would be the current spot FX rate? Given your answer, is the forward market expecting appreciation or depreciation of the Euro? Show work. (b) Now assume Mario Draghi, head of the ECB, becomes concerned about deflation in Europe, and engages in expansionary monetary policy. What would likely happen to European interest rates? Explain. (c) What would likely happen to the spot foreign exchange rate, if the European interest rate went to 1% (use the Exchange Rate Channel of Monetary policy and the Covered Interest Parity Condition to show work and reasoning)? Assume you have calculated the duration of a bond and it is 7.14. You see seventy percent odds of an Expansion happening during which interest rates would go from 5% to 6%. The only other scenario you see is a Recession during which interest rates would go from 5% to 3%. (a) Calculate the approximate price change of the bond in both scenarios. (b) Also, calculate the expected return considering all states