1. If the nominal interest rate is 8% and the inflation rate is 6%, what is the

1. If the nominal interest rate is 8% and the inflation rate is 6%, what is the real interest rate?
2. Jand, Incorporated, currently pays a dividend of $1.54, which is expected to grow indefinitely at 6%. If the current value of Jand’s shares based on the constant-growth dividend discount model is $41.41, what is the required rate of return? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
3. Tri-coat Paints has a current market value of $31 per share with earnings of $2.12. What is the present value of its growth opportunities (PVGO) if the required return is 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
4. Sisters Corporation expects to earn $7 per share next year. The firm’s ROE is 15% and its plowback ratio is 50%. The firm’s market capitalization rate is 10%.Calculate the price with the constant dividend growth model. What is the present value of its growth opportunities?
5. The FI Corporation’s dividends per share are expected to grow indefinitely by 5% per year.
a. If this year’s year-end dividend is $10 and the market capitalization rate is 10% per year, what must the current stock price be according to the dividend discount model? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. If the expected earnings per share are $15, what is the implied value of the ROE on future investment opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.
c. How much is the market paying per share for growth opportunities (that is, for an ROE on future investments that exceeds the market capitalization rate)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
6. An analyst gathers the following information about Meyer, Incorporated:
Meyer has 1,600 shares of 10% cumulative preferred stock outstanding, with a par value of $100 and liquidation value of $110.
Meyer has 20,000 shares of common stock outstanding, with a par value of $20.
Meyer had retained earnings at the beginning of the year of $5,850,000.
Net income for the year was $87,000.
This year, for the first time in its history, Meyer paid no dividends on preferred or common stock.
Calculate the total book value of Meyer’s common stock. What is the book value per share of Meyer’s common stock? (Round your answer to 2 decimal places.)
7. Braddock Construction Co.’s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?
8. Company A can issue floating-rate debt at LIBOR + 1% and can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5% and can issue fixed-rate debt at 9.4%. Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. What are the resulting net payments of A and B?