Posted: September 14th, 2022

A perpetuity?

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Textbook: (H) Financial Management: Principles and Applications Sheridan Titman, Arthur J. Keown & John D. Martin, 2018 Pearson ISBN.13: 978-0-134-41721-9 Questions: 1) Why do you think many companies compensate executives with options based on long-term increases in the value of the company’s stock? 2) How do you calculate the present value of an annuity? A perpetuity? A growing perpetuity? Which would you prefer? 3) Why are longer-term bonds more sensitive to changes in interest rates than shorter-term bonds? Describe the four key bond valuation relationships. 4) Explain why the investor’s required return on debt is not equal to the corporation’s cost of debt, and explain why the investor’s required return on equity is not equal to the corporation’s cost of equity.

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