QUESTION 1 a) The required return on Yahoos share is 15%. You own 1,000 shares of Yahoos Stock. You will receive a $2.30 per share dividend in one year. In two years, Yahoo will pay a liquidating dividend on $53 per share. Compute the current stock price. If you wish to have an equal dividend in the next two years, how will you achieve that through homemade dividends? Assume dividends as annuity. (5 marks) b) Explain the main reasons for a stock repurchase and outline two methods through which a firm may repurchase its shares? (3+2=5 marks) c) Differentiate between a non-recourse leveraged lease and a single-investor lease? (5 marks) d) Companies X and Y both want to raise $100 Million ten-year loans. Company X wishes to borrow at a fixed rate of interest because it wants to have a certainty about its future interest liabilities, while Company Y wishes to borrow at a floating rate because its treasurer believes that interest rates are likely to fall in the future. Company X has been offered a fixed interest loan at 13% and a floating rate loan at LIBOR+2.5%. Company Y has a better credit rating than X, and has been offered a fixed interest loan at 10% and a floating rate loan at LIBOR+1%. Describe by use of a diagram how you can bring these two companies together in an interest rate swap that would make both firms better off, without the intervention of a swap dealer. (5 marks)