Q 5

You decide to start a new taxi service in your spare time. The first thing you need to do is buy a car. After visiting Mr. Charming Salesman at Sundance Used Cars, you have narrowed your choice to 3 possibilities. The three cars you can afford and their yearly net revenues (fares - gas & maintenance) are listed below. Remember each car must be replaced when it finally dies if you are to remain in business. Assuming an appropriate discount rate of 3.5% which one would you buy?

Year	VW Bug	Yugo	Ford Tempo
0	-$500	-$1,800	-$3,000
1	800	1,400	1,400
2	800	1,400	1,400
3	800		1,400
4			1,400

Question options:

1-	Buy the Yugo it has the highest NPV at $859.57
2-	Buy the VW it has the highest EAA at $621.53

'''''''''''''''''''''''''''''''''''''''

Q6

A common stock pays quarterly dividends. A dividend of $1.00 per share has just been paid. Dividends are expected to grow 5% per quarter for the next two years, then 2% per quarter forever. If the required rate of return is 16% per year, compounded quarterly, find the price of the stock.

Question options:

1- $63.41

2- $68.77

''''''''''''''''''''''''''''''''''''''''''''''''''''

Q7

The following two bonds are identical in every respect except for their coupon rates (assume both have a face value of $1,000). If interest rates suddenly increased by 5%, what will happen to the prices of these two bonds, all else held constant?

Bond	Coupon Rate	Bond Value
A	16%	$1,229.40
B	10%	$885.30

Question options:

	1- Bond As percentage drop in price will be greater than Bond Bs percentage drop in price
	2-Bond Bs percentage rise in price will be greater than Bond As percentage rise in price
	3-Bond Bs percentage drop in price will be greater than Bond As percentage drop in price