MBA611 – The annual inflation rate measured by the Consumer Price Index (CPI)
1. Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%. What minimum rate of return must a T-bill have earned to meet your requirement of a 2% real rate of return?2. Minor Company currently pays a $2.10 annual cash dividend (D0). It plans to maintain the dividend at this level for the foreseeable future as no future growth is anticipated. If the required rate of return by common stockholders (Ke) is 12 percent, what is the price of the common stock?3. A firm has an issue of $1,000 par value bonds with a 14 percent stated interest rate outstanding. The issue pays semiannual interest and has 12 years remaining to its maturity date. If bonds of similar risk are currently earning 10 percent, the firm’s bond will sell for ________ today.A) $1,000B) $825C) $1,450D) $1,2764. Key differences between common stock and bonds include all of the following EXCEPTA) common stockholders have a voice in management; bondholders do not.B) common stockholders have a senior claim on assets and income relative to bondholders.C) bonds have a stated maturity but stock does not.D) interest paid to bondholders is tax-deductible but dividends paid to stockholders are not.
