Question 1: Assume that the interest rate is 8%. How much would you need to set aside to provide each of the following? a. 1 million at the end of each year in perpetuity. (4 marks) b. A perpetuity that pays 1 million at the end of the first year and grows at rate of 3% a year. (4 marks) Consider the following three companies: company A, company B and company C. Assume that these companies have an opportunity cost of capital of 10%. c. Company A is expected to provide a dividend of 10 a share forever. What is the market price of company A? (4 marks) d. Company B is expected to pay a dividend of 5 next year. Thereafter, dividend growth is expected to be 4% a year forever. What is the market price of company B? (4 marks) e. Company C is expected to pay a dividend of 5 next year. Then, dividend growth is expected to be 20% a year for five years (i.e., until year 6) and zero thereafter. What is the market price of company C? (6 marks) f. Consider a bond with a face value of 100, 5 years to maturity and a coupon rate of 6%, paid annually. Identify and explain the factors that affect the price of this bond. i. ii. (6 marks) Assuming bonds of similar risk in this market are currently offering a yield of 4%, calculate the price of the bond. (8 marks) g. The current share price of Motors Plc is 20. Next year's cash dividend is 0.85. Security analysts are forecasting that dividends will grow by 7.5% per year. Assume that the 7.5% growth rate is expected to continue forever. What rate of return are investors expecting? (4 marks) (Total 40 marks)