EXPLAIN ALL WITH DETAILS PLEASE

1. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

a.

The cash flows are in the form of an ordinary annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.

b.

The discount rate decreases.

c.

The riskiness of the investment's cash flows increases.

d.

The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

e.

The discount rate increases.

3. Reddick Enterprises' stock currently sells for $40.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, r , is 9.00%. What is the stock's expected price 3 years from today?

a.	$43.75
b.	$58.02
c.	$47.56
d.	$53.74
e.	$52.79

Answer:

2.

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

a.	If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0.
b.	Stock Y's realized return during the coming year will be higher than Stock X's return.
c.	If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount.
d.	Stock Y's return has a higher standard deviation than Stock X.
e.	If the market risk premium declines, but the risk-free rate is unchanged, Stock X will have a larger decline in its required return than will Stock Y.