What is the relationship between real and nominal rates of interest

1.      If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?

2.      You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly five more years. Assuming a 10 percent annual interest rate, what is the value of this trust?

3.      An investment having a 10.47 percent effective annual rate (EAR) has what APR? (Assume monthly compounding.)

4.      Sansom Street Company expects to pay a dividend of $2 per share at the end of year 1, $3 per share at the end of year 2, and then be sold for $32 per share at the end of year 2. If the required rate of return on the stock is 15 percent, what is the current value of the stock?

5.      Sansom Street Co. has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, calculate the stock price today. (The required rate of return is 10 percent.)

6.      A five-year treasury bond with a coupon rate of 8 percent has a face value of $1,000. What is the semiannual interest payment?

7.      A five-year bond with a 10 percent coupon rate and $1,000 face value is selling for

$1,123. Calculate the yield to maturity on the bond assuming annual interest payments

8.      You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three years later for $1,100. What is your rate of return over this three-year period?

9.      Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.

10.  What is the relationship between real and nominal rates of interest?