problem 1:

Illustrate out why the discount rate equals opportunity cost of capital?

problem 2:

“Nominal rate less inflation rate is equivalent to real rate of return” – Is it true? Why or why not?

problem 3:

A stock is expected to offer the EPS of Rs. 10 next year.  It follows a payout policy of 40%.  All reinvested earnings are anticipated to offer a return of 15% which is equivalent to required rate of return.  Suppose the company decides to raise the payout policy from 40% to 70%.  What is the consequence of decision on stock price?

problem 5:

Some stocks sell at a value more than Earnings of the upcoming year divided by required rate of return.  Assume the markets are efficient, why should market offer a value more than the value derived above?

problem 6:

“When the central bank alters the interest rate, bond prices react negatively” – Is it right? Why or why not?