1. The yield curve of the internal I-region shows that the 1-year, 2-year, 1-year, 3-year and 4-year securities are 5%, 6%, 6.5% and 6.75%, respectively. Using PET, calculate:
A) Expected annual rate for one year
B) Expected two-year rate for one year
C) Expected three-year rate for one year
D) Two-year expected rate for two years
2. E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today.
If you require a return of 10.25 percent on this stock, how much should you pay today?