MULTIPLE CHOICE

5.Which of the following is true regarding the risk-free interest rate? (a) It is the interest rate paid on US government bonds (b) It does not carry any default risk (risk of non-payment) (c) It is the lowest possible return on any investment with the same duration (maturity) (d) All of the above

6. Suppose you buy a 10 year zero coupon annual bond with yield to maturity of 4% and a face value of $100. If you hold the bond for 4 years and then decide to sell it to someone else, which of the following accurately describes the price you would sell the bond for? (a) 100 / (1.04)^10 (b) 100 / (1.04)^4 (c) 100/ (1.04)^6 (d) 100 /(1.04)^ 1/10

7. ABC Corporation currently pays a dividend of $1 per share. If that dividend grows at a rate of 4% per year forever and given an expected equity cost of capital of 5%, what is the current stock price of ABC Corporation? (a) $100 (b) $1000 (c) $11.1 (d) $10