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Question: a stock is expected to pay its first dollar81andnbspdividend inandnbsp9andnbspyears...

Question details

A stock is expected to pay its first $81 dividend in 9 years from now. The dividend is expected to be paid annually forever and grow by -1% pa (note the negative sign). The discount rate is 7% pa. Estimate the current stock price. The current stock price should be:

Select one:
a.

$514.7037

b.

$550.7329

c.

$589.2842

d.

$670.2842

e.

$1,012.5

 

b. You currently have $300 in the bank which pays a 3% pa interest rate. Apples currently cost $1 each at the shop and the inflation rate is 6% pa which is the expected growth rate in the apple price. All rates are given as effective annual rates. Which of the below statements is NOT correct?

Select one:
a.

In 2 years the nominal apple price will be $1.1236.

b.

The real growth rate in the apple price is expected to be -2.830189% pa.

c.

In 2 years your money in the bank will be worth $318.27 in nominal terms.

d.

In 2 years your money in the bank will be worth $283.259167 in real terms.

e.

The real bank interest rate is -2.830189% pa.

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