Question 4. (a) Critically examine the advantages and disadvantages of equity shares. (Points 2)

(b) How internal sources of finance is used in the industrial concern? (Points 2)

Question 5. (a) Two investors are evaluating General Electrics stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electrics stock. True or false? Explain (Points 2)

(b) A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate g throughout time. The stocks required rate of return is 14%. If markets are efficient, what is your forecast of g? (Points 2)

Question 6. (a) Wilson Wonderss bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? (Points 2)

(b) Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is this statement true or false? Explain. (Points 2)