Consider a perpetuity paying 2000 a year if the interest, Financial Management

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Consider a perpetuity paying 2000 a year if the interest

1. Calculate the required rate of return for Hurley Corp, assuming that (1) investors expect a 1.5% rate of inflation in the future, (2) the real risk-free rate is 2.5%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 1.25.

A. 9.25%

B. 10.00%

C. 10.25%

D. 12.75%

2. Consider a perpetuity paying $2,000 a year. If the interest rate is 5 percent, what is the PV of the perpetuity? If the rate were to increase would the value of the perpetuity increase or decrease? PV = CF/r

A. $2,100.00 decrease

B. $40,000.00 decrease

C. $40,000.00 increase

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