1. A stock is expected to pay dividends in 5 periods. The first dividend will be $4.80 and subsequent dividends are forecasted to stay constant for the foreseeable future. If the required return on the stock is 17.0%, what is its current value?
2. Suppose Sumitomo Bank quotes the ¥/$ exchange rate as 110.30-.40 and Nomura Bank quotes 110.40-.50. Is there an arbitrage opportunity? If so, explain how you would profit from these quotes. If not, explain why not.
3. Explain what John Kenneth Galbraith was talking about when he wrote of a ‘dependence effect’