1) Based on the concept of the climate effect, which one of these combinations correctly aligns in investor group with its preferred type of stocks?

A) low-tax bracket individuals, zero-to-low dividend payout stocks

B) high-tax bracket individuals, high dividend payout stocks

C) corporations, zero-to-low dividend payout stocks

D) tax-free institutions, medium dividend payout stocks

2) A put option and a call option on a stock have the same expiration date and the same exercise (or strike) price. Both options expire in 6 months. Assume that put-call parity holds and interest rate is positive. If both call and put options have the same price, which one of the following true?

A) Put option is in-the-money

B) Call options is in-the-money

C) Both call and put options are in-the-money

D) Both call and put options are out-of-the-money

3) A firm has estimated the residual earnings per share of stock for the next three years to be $0.50, $0.55, and $0.59, respectively. The residual earnings are expected to grow at 5 percent annually forever. The current book value of equity $15 per share and the required return on equity is 12%. What should be the current per share value of equity (i.e, the stock price per share in year 0)?

A) $7.60

B) $20.53

C) $22.61

D) $25.15