Assignment
1. Based upon the Gordon Growth Model, calculate the anticipated market price of a stock that is paying dividends at a constant growth rate of 6.25%, with a recent dividend of $1.00, and a required return rate of 15%. (Show all work/calculations/formulas.) You would like to consider purchasing a stock that is selling for $90 and pays $2.33 a year in dividends. It is predicted that the stock is going to sell for $114 one year from now, and you would like to earn 15% on the investment. Should you purchase the stock today- based upon the One-Period Valuation Model? And, what should the market price be today? (Show all work/calculations/formulas).
2. We are currently bidding on Treasury bills and have determined that we must have a 5% return for a $1,000 T-Bill that will mature in one year. How much would we be willing to bid on the Treasury bill? If we are bidding on a 13 weeks Treasury bill with a 1% return and a 26 weeks Treasury bill with a 2% return for a $1,000 T-bill, how much would we be willing to bid on the Treasury bills? (Show all work/calculations/formulas.)
3. What happens when a country's currency rises in value compared to other currencies of other countries? Is this a good or bad event? And, why should consumers be concerned?
4. What are the characteristics of a mortgage that affect the interest rates, and the characteristics that affect the loan terms?
5. What are the factors that affect exchange rates in the long run? What happens to the exchange rate (for the domestic currency) when the factors are either increased or decreased?
6. What is a mortgage? Provide the history of mortgages before and after the Great Depression.
7. What are the issues that are involved with the idea of moral hazard?
8. What are the three-stages found within a financial crisis for Emerging Markets?
9. What are the various conflicts of interest found within the financial system?
10. What can financial institutions offer in terms of transaction costs vs. alternatives?
11. Describe the idea of "national banking." How is the system evolving today (and into the future)?
12. What are the protections and regulations created for pension plans?
13. What are some of the ways that moral hazard and adverse selection are limited for insurance products?
14. What are some of the products and services created from technological advances in the banking system?