1. An inheritance offers the amount of $100 in one year but then grows that amount by a constant rate of 6% forever. Which of the following comes closest to the present value of the inheritance if the bond’s required rate of return is 10%?
a. $ 1,667
b. $ 1,429
c. $ 2,000
d. $ 2,500
e. $ 3,333
2. Limerick currently pays a dividend of $1.50 per share. Which comes closest to Limerick’s price per share if we assume that their dividend grows by 8% for two consecutive years, and then grows by 6% each year (starting in year 3) thereafter forever? Use a required rate of return of 10%.
a. $ 41.23 b. $ 54.49 c. $ 27.98 d. $ 33.28 e. $ 24.19