Question 2 Last year, you earned a rate of return of 7.41 percent on your bond i

Q: Question 2 Last year, you earned a rate of return of 7.41 percent on your bond i

QUESTION - 2 (1 + Real rate) = (1 + Nominal rate) / (1 + Inflation rate) = (1 + 0.0741) / (1 + 0.0377) = 1.0741 / 1.0377 = 1.035 Real rate = 1.035 - 1 = 0.035, or 3.5% QUESTION - 6 Total stock return = $63.05 x 13.9% = $8.76 Return from dividend = $8.76 / 3 = $2.92 Next dividend (Assuming % return is same at 13.9%) = $2.92 x 1.139 = $3.33 NOTE: First 2 questions are answered.

ID: 2759124 • Letter: Q

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Question 2

Last year, you earned a rate of return of 7.41 percent on your bond investments. During that time, the inflation rate was 3.77 percent. What was your real rate of return?

Use the exact relationship between real and nominal rates. Enter answer in percents, accurate to two decimal places.

Question 6

The common stock of Kangaroo Tours is selling for $63.05 a share and has a 13.9 percent rate of return. One-third of the return on this stock is derived from dividends and the other two-thirds is derived from capital gains. What is the amount of the next dividend?

Question 8

You are becoming addicted to World of Cowcraft, a popular MMORPG. After playing for a few hours, you estimate that in the next hour, you can produce 100 WoC gold. Due to your increasing skill level, you estimate that every hour thereafter your gold output will increase by 5.1% relative to the previous hour. If these estimates hold up, how much WoC gold in total can you mine in the next 50 hours of play (cumulatively for all 50 hours)? Will you ever get those hours of your life back?

Question 13

Last week, Onboard Co. has announced that the next two annual dividends will be in the amount of $2.66 and $4.01, respectively. After that, the dividends will increase by 2.02 percent annually. The required return on this stock is 12.99 percent. What is the current price per share? (Hint: draw this out on a timeline.)

Question 16

Dvorak Enterprises is expected to pay a stable dividend of $6 per share per year for the next 8 years. After that, investors anticipate that the dividends will grow at a constant rate of 2 percent per year indefinitely. If the required rate of return on this stock is 11 percent, what is the fair market value of a share of Dvorak?

Explanation / Answer

QUESTION - 2

(1 + Real rate) = (1 + Nominal rate) / (1 + Inflation rate)

= (1 + 0.0741) / (1 + 0.0377)

= 1.0741 / 1.0377

= 1.035

Real rate = 1.035 - 1 = 0.035, or 3.5%

QUESTION - 6

Total stock return = $63.05 x 13.9% = $8.76

Return from dividend = $8.76 / 3 = $2.92

Next dividend (Assuming % return is same at 13.9%) = $2.92 x 1.139 = $3.33

NOTE: First 2 questions are answered.

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Question 2 Last year, you earned a rate of return of 8.16 percent on your bond i

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Question 2 Last year, you earned a rate of return of 7.41 percent on your bond i

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