Question 1:
Illustrate out why the discount rate equals opportunity cost of capital?
Question 2:
“Nominal rate less inflation rate is equivalent to real rate of return” – Is it true? Why or why not?
Question 3:
A stock is expected to offer the EPS of Rs. 10 next year. It follows a payout policy of 40%. All reinvested earnings are anticipated to offer a return of 15% which is equivalent to required rate of return. Suppose the company decides to raise the payout policy from 40% to 70%. What is the consequence of decision on stock price?
Question 5:
Some stocks sell at a value more than Earnings of the upcoming year divided by required rate of return. Assume the markets are efficient, why should market offer a value more than the value derived above?
Question 6:
“When the central bank alters the interest rate, bond prices react negatively” – Is it right? Why or why not?