True/False (True-A, False-B) 1. If the interest rate (or discount rate) is positive, the future value of an expected series of payment will always exceed the present value of the same series. 2. If semiannual compounding is used, the effective annual interest rate (EAID is equal to the nominal annual rate. 3. You are able to buy a stock at $14 where as its intrinsic value (or fair value) is $14.01. You have indeed bought this stock at a bargain price. 4. Company ABC is expected to pay a dividend of $1.00 per year forever. You should be willing to pay up to $5 to buy a share of this company if your required return is 20%. 5. A company is expected to pay a dividend of $2/share at the end of year 1 and no dividends thereafter. You will be willing to pay up to $1.81 for one share if your required return is 10%. 6. You will write a call option if you are confident that the stock will not go up and believe that it will not fall drastically. Perhaps there will be little variation in stock price. 7. You are writing a put option on underlying British Pounds. It means that you are taking a long position Under constant growth DCF model growth rate can exceed the required return. Writing put option on an underlying index limits your profit to premium received, but the 8. 9. risk increases as stock rises