• July 31st, 2015

Corporate Finance Bonds and Stocks

Paper, Order, or Assignment Requirements

  1. a) “Bond prices and interest rates must move in opposite directions.”
    Evaluate this statement and, with the help of an example, justify whether this
    statement is true.
    (10 marks)

    b) Consider the following three stocks:
    Stock A is expected to provide a dividend of $10 a share forever.
    Stock B is expected to provide a dividend of $5 next year and thereafter the·
    dividend will grow at 4% each year indefinitely.
    Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend·
    growth is expected to be 20% a year for five years (i.e. until year 6) and zero
    If the market capitalisation rate for each stock is 10%, which stock is the most
    (10 marks)

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