6) Suppose the current risk-adjusted interest rate 2%. The applicable risk premium is 1%. In one year from today the risk-free (safe) interest rate will rise by 1% and will continue to rise by 1% per year thereafter. The present value of $100 to be received 3 years from today will be a) 88.90 b 104.64 c) 91.52 d 109.26 Suppose the current interest rate is 5%. A stock portfolio currently pays annual dividends of $100 but the dividends are expected to grow by 3% per year. Assume the first dividend (the $100 dividend is to be received immediately. What is the current price of the stock according to the Gordon growth model? a) 5100 b) 5250 c) 5000 d 5350 A five-year coupon bond with a face value of $1000 is sold in the primary market. The interest rate is 8%, immediately after receiving the second coupon payment the bondholder sells the bond into the secondary market. At the time of resale the interest rate has dropped to 6%, what is the resale price of the bond? a) 948.46 b) 986.29 c) 1025.31 d 1053.46 Suppose the Bank of Canada lowers interest rates. Which of the following effects would be expected to cause stock prices to rise? a) Decreased uncertainty causing risk premiums to fall b) Economy would grow so stock dividends would rise c) The present value of the future income streams of bonds would increase d All of the above %. In per year thereafter Thk-free (aafeLnterestrate will is 7) B) 9) 10) Which of the following is false? a) Long term bond prices are more volatile than short term bond prices b) If the interest rate falls by 2% its better to be invested in longer-term bonds (than shorter) c) If interest rates are expected to increase you would be better off buying stocks than bonds d The risk premium on dividends should increase as interest rates rise