1. Company A paid a $3.50 dividend last year. The firm plans to pay out 25% of its earnings and invest the rest of its earnings in new projects earning a 8% return forever. What is the value of the common stock if the investors require a 16 percent rate of return?

A. $32.45

B. $35.50

C. $37.10

D. $25.23

2. If a bond price is $1070 and pays 6% annual coupon for 20 years. What is the yield maturity (discount rate) of the bond? ( You dont have to calculate, you can answer this question using the idea from 4 key relationship)

A. 6.40%

B. 5.42%

C. 8.90%

D. 7.52%

3. Which of the following parties receive the residual claim when bankruptcy does occur?

A. Perferred stockholders

B. Common stockholders

C. banks

D. debt holders