Author Question: Cyberdyne Systems just paid a dividend of 1.32 on its common stock, and the next dividend will be ... (Read 71 times)

folubunmi · **on:** Jul 10, 2018

Cyberdyne Systems just paid a dividend of 1.32 on its common stock, and the next dividend will be paid one year from now. You require a return of 6.

What is the market price of this stock if dividends are paid annually in perpetuity and grow at the rate of 2.62 per year forever?
A) 15.31
B) 15.71
C) 22.58
D) 39.05
E) 40.08

Question 2

Elizabeth is seeking to expand her rare coin collection. Each year, rare coins increase in price at a three percent rate. She believes that if she invests her money for one year, she should be able to buy 26 coins for what 25 coins would cost today.

What is the approximate nominal rate necessary to compensate for waiting and to cover inflation?
A) 7.00
B) 6.50
C) 6.00
D) 5.00

shaquita · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

E

Answer to Question 2

Answer: A
Explanation: A) The inflation rate is 3.00. The real rate is given by - 1 where FV = 26, PV = 25 and n = 1. We have: real rate - 1 = 0.04 or 4.00.
Nominal rate = real rate + inflation = 3.00 + 4.00 = 7.00, which is the rate necessary to compensate her for waiting and to cover inflation.