Section B: Short Answer Questions 30 marks Answer all questions. 1. Nancy would like to accumulate $10,000 by the end of 3 years from now to buy a sports car from her friend, Jim. She has $2,500 now and would like to save equal annual end-of-year deposits to pay for the car. How much should she deposit at the end of each year in an account paying 8 percent interest to buy the car? (4 marks) 2. You have provided your friend with a service worth $8,500. Your friend offers you the following cash flow instead of paying $8,500 today. Should you accept his offer if your opportunity cost is 8 percent? Year 1 2 3 4 Cash Flow $4,000 3,000 2,000 1,000 (6 marks) 3. FYI bonds have a par value of $1,000. The bonds pay $40 in interest every six months and will mature in 10 years. nes B 1 U S X $ (6 marks) 3. FYI bonds have a par value of $1,000. The bonds pay $40 in interest every six months and will mature in 10 years. a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. Explain the impact on price if the required rate of return decreases. (10 marks) b. 4. Diana Ltd. paid a $2.50 per share dividend yesterday. The dividend is expected to grow at 10 percent per year for the foreseeable future. Diana Ltd. has a required return of 18%. What is the value of a share of Diana Ltd. common stock? (3 marks) 5. You are considering the purchase of Zee Company stock. You anticipate that the company will pay dividends of $3.50 per share next year and $4.00 per share the following year. You believe that you can sell the stock for $20.00 per share two years from now. If your required rate of return is 10 percent, what is the price that you would pay for a share of Zee Company stock? (5 marks) 3. Tina's Medical Equipment Company paid $2.25 common stock dividend last year. The company's policy is to allow its dividend to grow at 5 percent per year indefinitely. What is the value of the stock if the required rate of return is 8 percent? (2 marks)