Question: Question 1 (25 marks) a) Explain the difference between the unbiased expectations theory of the term structure of interest rates and the liquidity premium theory.

Question 1 (25 marks) a) Explain the difference between the unbiased expectations theory of the term structure of interest rates and the liquidity premium theory. (15 marks) b) A stock you are evaluating just paid an annual dividend of 2,50. Dividends have grown at a constant rate of 1.5% over the last 15 years and you expect this to continue i. If the required rate of return on the stock is 12%, what is the fair present value? (5 marks) ii. If the required rate of return on the stock is 15%, what should the fair value be four years from today

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