3. (a)What kind of cash flows do investors expect from their investment in gövernime (b)What role does bond indenture plays in a bond investment? (c)Assume that a company listed on the Sunrise Stock Exchange expects to pay dividends amounting to 100 shillings per share next year, shillings 200 in the year that follows and 250 shillings in the following year. After that, dividends are expected to grow at constant 5% per year. If the required rate of return is 10%, what price should investors pay for such shares today?
3. (a)What kind of cash flows do investors expect from their investment in gövernime (b)What role does bond indenture plays in a bond investment? (c)Assume that a company listed on the Sunrise Stock Exchange expects to pay dividends amounting to 100 shillings per share next year, shillings 200 in the year that follows and 250 shillings in the following year. After that, dividends are expected to grow at constant 5% per year. If the required rate of return is 10%, what price should investors pay for such shares today?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:three years. What răte UI merEJI TU
3. (a)What kind of cash flows do investors expect from their investment in government bonds?
(b)What role does bond indenture plays in a bond investment?
(c)Assume that a company listed on the Sunrise Stock Exchange expects to pay dividends amounting to
100 shillings per share next year, shillings 200 in the year that follows and 250 shillings in the following
year. After that, dividends are expected to grow at constant 5% per year. If the required rate of return is
10%, what price should investors pay for such shares today?
4. Suppose a firm is considering a project that would require an initial cash outlay of 15 million shillings and
expected to generate shs 4.5 million each year for the next 4 years. The firm assumes that the prices
and costs increases at the same rate and that the required rate of return expressed in nominal terms is
14%.The firm also practices a policy whereby cash flows are stated at the prices of period zero. The
inflation rate is expected to be 5%.
(a)Outline two ways in which the effects that inflation has on the acceptability of investment projects
could be considered.
(b)Using the NPV technique, is the project worth taking? What have you learned from your analysis as
far as treating inflation in investment analysis is concerned?
/2021 4:39:41 PM
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