1. A bond that pays interest annually yields a 6.875 percent rate of return. The inflation rate for the same period is 4.35 percent. What is the real rate of return on this bond?
A. 2.53 percent
B. 2.38 percent
C. 2.61 percent
D. 2.42 percent
E. 2.64 percent
2. MicroTron is a new entrant into a rapidly growing industry. The firm is plans to increase its annual dividend by 25 percent a year for the next three years and then decreasing the growth rate to 6 percent per year. The company just paid an annual dividend of $0.80 per share. What is the current market price of one share of this stock if the required rate of return is 17 percent?
A. $12.14
B. $12.94
C. $11.17
D. $14.27
E. $15.06
3. Westover Ridge offers a 9 percent coupon bond with semiannual payments and a yield to maturity of 11.68 percent. The bonds mature in 16 years. What is the market price per bond if the face value is $1,000?
A. $807.86
B. $916.26
C. $1,322.88
D. $1,453.10
E. $863.08