1. Suppose you are looking at a bond that has a 12% annual coupon (interest is paid annually) and a par (face) value of $1000. There are 3 years to maturity and the yield to maturity is 8%.
a. What is the price of this bond?
b. Does the bond sell for a premium or discount? Explain your answer. Consider a bond with four years to maturity that has a 9.25% coupon rate.
2. If the current market interest rate is 10%, how much will the bond price fall if the interest rate falls by 1%?
3. WD stock will pay no dividends for four years. In year five it will pay a $3 dividend (DIVs =3). The dividend will then grow at a 5% rate forever after that. The discount rate on WD stock is 10%. What is the present value of the stock price at time 4?
4. SP stock will pay a $2 dividend next year (DIV1 = 2). The dividend will then grow at a 3% rate forever. The required rate of return on SP stock is 10%. What should be the price of SP stock?
5. Carmine Co. stock will pay a S4 dividend next year (D_1= $4). After next year's dividend, the dividends will grow at a 5% rate for the following two years and then grow at a 3% rate forever. The required rate of return for the stock is 8%. What will be the price of Carmine's stock in five years?