1. A firm presently pays a $2 dividend that is expected to grow up to year 3 at 4% and then for another four years at 3% after which dividend growth slows to 1.5% forever. Explain clearly what the earliest year is that you should find the future selling price needed to find the stock price today. ( Note: I am not asking for a calculation here, which is why I have not given you the required return ).
2. If you save $500 per month for 45 years, how much can you accumulate? Assume monthly compounding and that you can earn 9%, on average, on your investments.
3. MATURITY RISK PREMIUM The real risk-free rate is 2.5%, and inflation is expected to be 3.25% for the next 2 years. A 2-year Treasury security yields 10%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.