1. Consider two firms, CompanyB and CompanyC, both with earnings of $10 per share and 5 million shares outstanding. CompanyC is a mature company with few growth opportunities and a stock price of $25 per share. CompanyB is a new firm with much higher growth opportunities and a stock price of $40 per share. Assume CompanyB acquires CompanyC using its own stock and the takeover adds no value. In a perfect capital market, how many shares must Bob offer CompanyC's shareholders in exchange for their shares?
A) 0.625 B) 1 C) 0.3846 D) 1.6
2. A stock increased from $50 to $57. If the risk premium of the stock is 10%, what is the rate of inflation if the real risk-free rate is 1.5%?
A. 1.2% B. 1.9% C. 2.5% D. 2.9% E. 3.4%