1. Suppose that your company is expected to pay a dividend of $1.70/share next year. There has been a steady growth in dividends of 5.1%/year and the market expects that to continue. The current price is $35. What is the cost of equity? a) 0.100 b) 0.200 c) 0.015 d) 0.001 2. W hich one of the following is best classified as unsystematic risk? a) An unexpected recessionary period b) An unexpected increase in interest rates c) An unexpected decline in the sales of a firm d) A sudden increase in the inflation rate 3. The goal of diversification is to eliminate: a) Total risk. b) The market risk premium. c) Systematic risk d) Unsystematic risk. 4. Which one of the following has a rate of return that is used as a proxy for the risk-free rate? a) Treasury notes (short-term government securities) b) Large-company stocks c) Long-term corporate bonds d) Inflation, as measured by the consumer price index 5. A risk premium is defined as a) The expected market return b) The premium you have to pay for investing in risky assets c) The premium you have to pay for investing in assets that have high returns with low risk. d) The extra return received on an asset above the risk free rate 6. What is the Beta of the market? a) d) Depends on the systematic risk in the market risk in the market 7. The cost of capital for a project should