1. Analysts forecast Target’s growth rate to be 8.00 percent in the future. Their most recent dividend was $1.25. What is the value of Target's stock when the required return is 11 percent? If the current price of Target were $45.00, would you purchase this stock?
2. Assume that you are interested in a 4.50 percent coupon corporate bond that has ten years left to maturity. The market interest rate is 5.25 percent. If coupon payments are semiannual, what should the price of this bond be? Is this a discount bond or premium bond, and why??
3. Analysts forecast Kroger’s growth rate to be 9.25 percent in the future. Their most recent dividend was $.95. What is the value of Kroger's stock when the required return is 12.50 percent? If the current price of Kroger were $25.00, would you purchase this stock?
4. Suppose that the current 1-year rate and expected 1-year T-bill rates over the following three years are as follows:
1R1 = 4.75%, E(2r1) = 4.25%, E(3r1) = 3.75%
If the unbiased expectations theory is correct, what should the current long-term rates for 1-, 2-, and 3-year maturity Treasury securities?