1. Assume the liquidity preference hypothesis is true. If interest rates are expected to be constant, the term structure of interest rates should be:

a. Upward sloping

b. Flat

c. Downward sloping

d. a or b

e. a, or b or c

2. Your company paid a dividend of $1.50 last year. The growth rate is expected to be 4% for 1 year then 5% per year thereafter. The required rate of return on equity is 8%. What is the expected current stock price?

$33.45

$40.98

$44.49

$49.60

$52.00