1. You are thinking to purchase a 15-year $1000 face value bond that would pay a coupon payment of $90 annually. If you required a return of 12%, how much should you be willing to pay for this bond?
2. A stock is expected to sell for $22 in one year. It is also expected to pay 1 $1.00 dividend during the year. If you require a 15% return on this kind of investment, what is the most you would pay for the stock today?
3. Firm A has an equity beta of 1.5 when many estimate the market risk premium to be 8% and the risk-free frate is 3%. If the market is pricing Firm A with an Expected Return of 10%, is the market over-valuing or under-valuing Firm A? Please explain.