1. Free motion enterprises paid a $2.20 per share annual dividend last week. Dividends are expected to increase by 3.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent? If Free Motion's stock is selling for $18 per share, what is your trading strategy on the stock?
A. Buy, the stock is currently undervalued.
B. Sell, the stock is currently undervalued.
C. Buy, the stock is currently overvalued.
D. Sell, the stock is currently overvalued.
E. Nothing, the stock is fairly priced.
2. Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price?
A. Yes, the bond is worth more at $1,015.
B. No, the bond is only worth $921.
C. Yes, the bond is worth more at $951.
D. No, the bond is only worth $912.