1. If your opportunity cost of capital is 10%, how much are you willing to pay for an investment that returns $750 for the first four years and $450 for the next six years? The returns come at the end of each year.
A) $4087.62 B) $3716.01 C) $3859.86 D) $3902.29
2. A spring cleaning of the attic revealed that you own some perpetual bonds: that is bonds that pay interest forever. The bonds pay $6,000 per year. If you can earn 12% on your investments, how much are these bonds worth today?
A) $6,000 B) $50,000 C) insufficient information to determine present value D) $18,000
3. Global Airways common stock just paid a dividend of $1.75. The firm expects dividends to grow at a rate of 6.5% indefinitely. If the investors require a rate of return on the stock of 13.75%? What is the value of Global Airway's common stock today? Round off to the nearest $0.10.
A) $13.55 B) $36.40 C) $25.70 D) $24.13