Exam (elaborations)
Sample question on Chapter 7
- Institution
- University Of Toronto (U Of T )
Sample question in Chapter 7
[Show more]
Seller
Follow
Content preview
MGEC71 Sample Questions1. Explain in words how pricing a stock is similar to pricing a bond. Assume the stock is held for n
periods and then is sold AND does not pay any dividends. What kind of bond is this like? Hint:
You may write down the mathematics if this helps.
2. Explain in words how pricing a stock is similar to pricing a bond. Assume the stock is held for n
periods and then is sold AND pays a dividend of $D per year. What kind of bond is this like? Hint:
You may write down the mathematics if this helps.
3. Explain in words how pricing a stock is similar to pricing a bond. Assume the stock is held forever
AND pays a dividend of $D per year. What kind of bond is this like? Hint: You may write down
the mathematics if this helps.
4. Explain in words how pricing a stock is similar to pricing a bond. Assume the stock is held
forever, pays a dividend of $D per year AND this dividend grows at g (per cent per year). What
kind of bond is this like? Hint: You may write down the mathematics if this helps.
5. Derive an expression for the (maximum) price an investor is willing to pay for a dividend paying
bond assuming it is to be held forever and pays a dividend of $D per year (forever). Define all
notation used.
6. Derive an expression for the (maximum) price an investor is willing to pay for a dividend paying
bond assuming it is to be held forever and pays a dividend of $D per year but this dividend is
growing at a rate of g per year (forever). Define all notation used.
7. Derive an expression for the (maximum) price an investor is willing to pay for a dividend paying
bond assuming it is to be held for n years and pays a dividend of $D per year (forever). Explain
how and why the equation derived differs from that derived in Q5 above. Define all notation
used.
8. Derive an expression for the (maximum) price an investor is willing to pay for a dividend paying
bond assuming it is to be held for n years and pays a dividend of $D per year but this dividend is
growing at a rate of g per year (forever). Explain how and why the equation derived differs from
that derived in Q6 above. Define all notation used.
9. Suppose people suddenly revise upwards their expectation of the probability a firm will go
bankrupt five or more years forward from today. Write down an expression for the maximum
price an investor is willing to pay for this firm’s dividend paying shares. Assume the dividend has
been fixed at $D per year for many years in the past. Compare this expression to the one written
down in chapter 7 (and in our lecture slides). Explain any and all differences between these two
formulas.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller yudasu. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for CA$9.73. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
76449 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now