Lightning Electric's outstanding bond has a $1,000 maturity value and a 4.5 percent coupon rate of interest (paid semiannually). The bond, which was issued five years ago, matures in 10 years. If investors require a return equal to 6 percent to invest in similar bonds, what is the current market value of Lightning's bond?
Problem 3-2
Minimight Company has never paid a dividend, and there are no plans to pay dividends during the next three years. But, in four years that is, at the end of Year 4-the company expects to start paying a dividend equal to $3 per share. This same dividend will be paid for the remainder of Minimight's existence. If investors require a 10 percent rate of return to purchase the company's common stock, what should be the market value of Minimight's stock today?