Fin. Mgt$.$

$4$

Question $4[5$ marks$]$

Answer questions a$)$ and b$)$ below.

$($Lecture notes pp$\mathrm{.}16-17)$

a$)$ Today is Dec. $31,2050.$ You are about to invest in a financial claim. Each share of the financial claim promises to pay $$300$ in one year from today and will make the same payment at the end of each year indefinitely. Assume that the discount rate is $10\%.$

Determine the price per share of the financial claim.

Answer $($show the steps$/$calculation toward your results$)$:

b$)$ Suppose that there is another type of financial claim with a slightly different payment scenario. Each share of the claim promises to pay $$80$ for the next three years, starting from Dec. $31,{2051}_{{?}_{?}}$ and then will pay $$300$ from Dec. $31,2054$ forever thereafter. The same discount rate applies.

Find the price per share of this financial claim.

Answer $($show the steps$/$calculation toward your results$)$: