Suppose the current one-year Treasury Bill rate is 6%, the current three-year Tr

Question

Suppose the current one-year Treasury Bill rate is 6%, the current three-year Treasury Bond rate is 5.8%, and the current five-year Treasury Bond rate is 5.7%.  According to the expectations theory of interest rates, what would you expect the two-year Treasury bond rate to be one years from now?

a)      5.25%               b) 5.4%            c)5.55%                     d)  5.7%

A stock expects to pay a dividend of $1 in year one and $2 in year two.  From that point onward, dividends are expected to grow by 10% per year forever.  What is the fair price for this stock if it has a required return of 14%?  

a)      $27.25             b) $36.33                     c) 44.75                       d)  $55

You

Explanation / Answer

d

d

c

a

b

d

a

d

c

b

a

d

b

b

a

d

d

c

true

d

a

b

d

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