EXERCISES
EXERCISE 1
A corporation paid a dividend of 10 euro per share in 2023 and a dividend of 10.1 euro
in 2024. We expect the dividend to keep growing at the same rate forever. The annual
cost of equity is 5% and the annual cost of debt is 2%. What should the price of the
shares be according to the dividend-discount model?
EXERCISE 2
Consider the following series of unadjusted monthly closing prices (in euro) of a stock
that undergoes the corporate events indicated next to the price.
January: 18
February: 18.6
March: 5.6 3 for 1 split
April: 6.4
May: 3.4 2 for 1 stock split
June: 3.7
Compute the adjusted stock returns.
EXERCISE 3
Given the following series of returns
0.048 , 0.02 , -0.01 , 0.1
and the following series of risk-free rates
0.005 , 0.005 , 0 , 0
Compute the Sharpe ratio of the investment.
EXERCISE 4
A risky investment is estimated to deliver the following returns.
After 9 months:
• 𝑅 = −0.15 with a 20% probability
• 𝑅 = 0.1 with a 70% probability
• 𝑅 = 0.25 with a 10% probability
After 24 months:
• 𝑅 = −0.2 with a 20% probability
• 𝑅 = 0.15 with a 60% probability
• 𝑅 = 0.3 with a 20% probability
The annual inflation rate is 3%.
What is the real cumulative expected return after 24 months?