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Explain why investors would place a lower value on a stock if (a) its expected future cash flows were smaller; (b) its expected future cash

  • Explain why investors would place a lower value on a stock if (a) its expected future cash flows were smaller; (b) its expected future cash flows were coming later; and (c) there was more risk associated with its expected future cash flows.
  • Illustrate using numbers, the relationship (positive or negative) between the PV and the (a) FV (b) number of periods and (c) the discount rate.
  • You wish to withdraw from your bank account $100 today and $200 next year and can earn 10% per year. Illustrate what one-time deposit you would have to make today in order to be able to make the desired withdrawals. Be sure to explain how you determined which exponents to use in this calculation.
  • Assume that your salary is $100 a year and that you spend it all on a total of 10 items with the price of each item being the same. How many items can you buy and what happens to your purchasing power if (a) your salary increases by 10% and so does the average price level (b) your salary increases by 10% and the average price level increases by 20% (c) your salary increases by 10% and the average price level increases by 5%?
  • The total return from owning a coupon-paying bond has two parts--the coupon part and the capital gain or loss part. Explain how its possible for the total return on a bond to be either greater than or less than the coupon part of the total return. Illustrate with a numerical example.

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