1. We have a stock which has a P/E of 12. It has 1 million outstanding shares and the equity is $2 million. Its net profit margin, financial leverage and ATO are .07, 1.3 and 1.6 respectively. Derive the price for next year. What are 4 important variables that affect P/E ratios?
2. You just purchased a bond that matures in 5 years. The annual bond (not semiannual) has a face value of $1,000 and has a 9% coupon. The bond has a current yield (annual coupon payment divided by the market price) of 8.21%. What is the bond's yield to maturity? Identify all numbers and show all work.