Financial Economics II Fall 2020 Prof. Ali Ebrahimnejad Prof. Mahdi Mohseni 1. 3. Quiz #1 ‘A common stock will pay dividend of $5 next year. After that, the dividends are expected to rise indefinitely at 5% per year. If the discount rate is 15%, what is the PV of the stream of dividend payments? [5 mark Whieh one would you prefer? Work ont the value of each of these investments after 5 years a, An investment paying interest of 11% compounded annually. {5 marks} b, An investiment paying interest of 10.7 percent compounded semiannually. [5 marks) ¢. (Optional) An investment paying 10.5 percent compounded continuously. [-+5 marks} Is the yield on high-coupon bonds more likely to be higher than that on low-coupon bonds when the term structure is upward-sloping or when it is downward-sloping? Explain, [5 marks}