1. Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $0.55 per share in 2 years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the current value of this stock.

• $28.05

• $27.50

• $24.89

• $24.34

2. TIPS Interest and Par Value A 4.50 percent TIPS has an original reference CPI of 172.2. If the current CPI is 207.5, what is the current interest payment and par value of the TIPS? (Round your answer to 2 decimal places.)

• $1,000, $27.11, respectively

• $1,204.99, $4.99, respectively

• $1,000, $4.99, respectively

• $1,204.99, $27.11, respectively

3. Liquidity Premium Hypothesis One-year Treasury bills currently earn 5.55 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.80 percent. The liquidity premium on two-year securities is .080 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

• 11.4300%

• 3.8100%

• 5.7150%

• 5.6750%

4. Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 5.20 percent. Your broker has determined the following information about economic activity and the corporation bonds: Real interest rate = 4.10% Default risk premium = 2.45% Liquidity risk premium = .35% Maturity risk premium = 2.20% What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

• 1.10% and 10.20%, respectively

• 1.10% and 9.10%, respectively

• 5.20% and 14.30%, respectively

• 1.10% and 2.04%, respectively