Principles of Money, Credit and Banking, Quiz #3

Fin 3323-001

Professor Hein

2nd summer session 2000

 

  1. Suppose that a given stock can be valued with the Gordon constant growth model. The firm's next dividend is anticipated to be $2, and the dividend is anticipated to grow 3% per year, will the appropriate discount rate is 11%. What should today's stock price be? (Show your work)

    2.  

  2. List three types of capital market instruments.

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  3. Suppose that you can earn 9.5% on a corporate security and 7% on a municipal security. Both securities are similar in all other ways than their tax treatment. If you were to try and maximize your after-tax return, which security would you buy if your marginal tax rate were 30%? Why?