1. Cellular Talk is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 25 percent a year for the next three years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17 percent?
2. Explain default risk, inflation risk, and interest rate risk as they relate to bonds.
3. Assume you are the advertising manager of your local bank. Which rate do you prefer to advertise on monthly-compounded loans, the effective annual rate (EAR) or the annual percentage rate (APR)? Which rate do you prefer to advertise on quarterly-compounded savings accounts, the EAR or the APR? Explain. As a consumer, which rate do you prefer and why?