1. Describe the likely importance of the difference between nominal and effective interest rates from the perspective of an individual: 1) buying a new automobile using a 60-month installment loan, versus an individual 2) investing for their retirement in a 401k plan through their employer.
2. Stock R has a beta of 2.5, Stock S has a beta of 0.85, the expected rate of return on an average stock is 8%, and the risk-free rate of return is 4%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.