1. Suppose that investors believe that the risk-free rate will increase in the near future. How will this affect the market value of common shares?

		Common shares will increase in value.
		Common shares will decrease in value.
		Common shares will not be affected by the change in the risk-free rate.
		Cannot be determined.

2. XYZ common stock sells for $15 and just paid a $2 dividend per share, which is expected to grow at a rate of 5% indefinitely. You require a 20% rate of return. Should you buy the stock today if you expect to sell it in four years for $25?

		Yes
		No
		You'd be indifferent between buying the stock and not doing so.
		Cannot be determined.