1. Your required rate of return is 15.1%. Rosie's Manure Co. is currently selling for $38 per share and is expected to pay a dividend of $3 next period. The expected constant growth rate is 7%. Which of the following statements is true in making a stock decision?

a. You can justify buying this stock because: the required return > than the expected return.

b. You can justify buying this stock because: expected return > the required return

c. You cannot justify buying this stock because: the required return < the expected return.

d. You cannot justify buying this stock because: the required return > the expected return.

2. All else being equal, which bond has a higher duration:

a. A thirty-year 4% corporate debenture with 18 years until maturity.

b. A newly issued 3.25% thirty-year T-bond.

c. A newly issued thirty-year zero-coupon bond.

d. A ten-year 3.6% corporate bond discounted by a ratings decline with 7 years until maturity.

3. Prospect Theory suggests, among other things, that how one feels about risk depends upon what results you have experienced in the past.

a. True

b. False