Question

please answer ASAP

1.

You own shares of stock in a company that trades for $75 per share in a Perfect Capital Market.

Assuming that there are no other factors that affect the stock price, what is the stock price in each of the following scenarios?

a. The company announces a 2 for 1 stock split. What is the value of a share of stock after the split?

b. The company announces a $2.00 per share dividend. What is the value of the stock on the ex-dividend date?

c. The company announces a repurchase of 10% of the outstanding shares. What is the share price following the repurchase?

               d. The company announces a 50% stock split. What is the value of a share of stock after the split?

2.

List the five key types of Interest Rate Risk that life insurance companies may encounter.

              Select ONE SPECIFIC type of Interest Rate Risk and provide a brief explanation.

Answer 1

1. You own shares of stock in a company that trades for $75 per share in a Perfect Capital Market. Assuming that there are no other factors that affect the stock price, what is the stock price in each of the following scenarios?

a. The company announces a 2 for 1 stock split. What is the value of a share of stock after the split?

Solution: a.

Given:

Current Market Price Per Share = $ 75

Stock Split = 2 for 1 Therefore, Split ratio = 2:1

To Calculate:

The Value of a Share of Stock After the Split:

Formula:

Value of a Share of Stock After the Split = Current Market Price Per Share / Split Ratio

On putting the values in the formula, we get,

The Value of a Share of Stock After the Split = $ 75 / (2/1)

= $ 75 / 2

= $ 37.50

Ans: a. The Value of a Share of Stock After the Split = $ 37.50

b. The company announces a $2.00 per share dividend. What is the value of the stock on the ex-dividend date?

Solution: b.

Given:

Current Market Price Per Share = $ 75

Dividend Per Share = $ 2.00

To Calculate:

The Value of the Stock on the Ex-Dividend Date:

Formula:

Value of the Stock on the Ex-Dividend Date = Current Market Price Per Share - Dividend Per Share

On putting the values in the formula, we get,

The Value of the Stock on the Ex-Dividend Date = $ 75.00 - $ 2.00

= $ 73.00

Ans: b. The Value of the Stock on the Ex-Dividend Date = $ 73

c. The company announces a repurchase of 10% of the outstanding shares. What is the share price following the repurchase?

Ans: c. The share price following the repurchase cannot be determined because total number of shares and total number of outstanding shares is not given in the question.

d. The company announces a 50% stock split. What is the value of a share of stock after the split?

Solution: d.

Given:

Current Market Price Per Share = $ 75

Stock Split = 50 % i.e. 3 for 2 Therefore, Split ratio = 3:2

To Calculate:

The Value of a Share of Stock After the Split:

Formula:

Value of a Share of Stock After the Split = Current Market Price Per Share / Split Ratio

On putting the values in the formula, we get,

The Value of a Share of Stock After the Split = $ 75 / (3/2)

= $ 75 / 1.5

= $ 50

Ans: d. The Value of a Share of Stock After the Split = $ 50