Corporate Valuation questions

Please answer each question, minimum of 150 words.

1. As you increase the length of time involved, what happens to future values? What happens to present values?

2. What happens to the future value of an annuity if you increase the rate r? What happens to the present value?

3. Is it true that a U.S. Treasury security is risk-free?

4. Which has greater interest rate risk, a 30-year Treasury bond or a 30-year BB corporate bond?

5. Are there any circumstances under which an investor might be more concerned about the nominal return on an investment than the real return?


A. In the context of the dividend growth model, is it true that the growth rate in dividends and the growth rate in the price of the stock are identical?

B. What are the three factors that determine a company’s price−earnings ratio?


A. Why does the value of a share of stock depend on dividends?

B. A substantial percentage of the companies listed on the NYSE and the NASDAQ don’t pay dividends, but investors are nonetheless willing to buy shares in them. How is this possible given your answer to the previous question?

C. Referring to the previous questions, under what circumstances might a company choose not to pay dividends?

D. Under what two assumptions can we use the dividend growth model presented in the chapter to determine the value of a share of stock? Comment on the reasonableness of these assumptions.

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