1. General Floaters has an outstanding bond with 10 years to maturity, which pays an 8% semi-annual coupon.
The current price of the bond is 1181.88 for a $1000 face value.
What is the yield to maturity?
a. 5.6 percent
b. 7.7 percent
c. 3.8 percent
d. 2.8 percent
e. 7.1 percent
2. Bruin Inc. will have earnings of $15 million next year and is projected to grow at a constant rate of 6 percent forever. All earnings are paid out as dividends to shareholders.
The company plans to launch a new project two years from now that will cost $10 million. The project will increase the firm's annual earnings by a constant $8.3 million every year forever starting one year later (i.e. 3 years from now).
What is the market value of the company stock? The discount rate is 13.5 percent.
a. $240 million
b. $89 million
c. $151 million
d. $251 million
e. $40 million