1. William has a choice of investing $2,500 for 5 years in CD #1 that pays 6% compounded annually or a CD #2 that pays 6.5% simple interest annually (meaning it does not pay interest on the interest). What will be the value of each investment at the end of five years?
a) #1, $3,250.00; #2, $3,312.50
b) #1, $3,250.00; #2, $3,425.22
c) #1, $3,345.56; #2, $3,312.50
d) #1, $3,345.56; #2, $3,425.22
2. The current price of XYZ stock is $50.00. Dividends are expected to grow at 7% indefinitely and the most recent dividend was $1. What is the required rate of return on XYZ stock?
9.0%
11.2%
9.1%
9.3%
10.6%