Question 1: Blue Water Designs is preparing a bond offering with a 7 percent coupon rate and a face value of $1,000. The bonds will be repaid in 5 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which one of the following statements is correct?
- The bonds will be sold at a discount.
- The bonds will pay five interest payments of $70 each.
- The bonds will sell at a premium if the market rate is 7.5 percent.
- The bonds will initially sell for $965 each.
- The final payment will be in the amount of $1,035.
Question 2:
Ernie's Auto Sales is a relatively new firm that is still in a period of rapid growth. The company plans on retaining all of its earnings for the next four years. Five years from now, the company projects paying an annual dividend of $.20 a share and then increasing that amount by 3.5 percent annually thereafter. To value this stock as of today, you would most likely determine the value of the stock _____ years from today before determining today's value