1. Assume that you are considering the purchase of a 15-year bond with a coupon rate of 10%. The bond has a par value of $1,000 and makes semiannual interest payments. If you require 12.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
2. Jane's sister-in-law, stockboker at Invest, Inc., is trying to get Jane to buy the stock of HealthWest, a regional HMO. The stock has a current market price of $25, it last dividend (D0) was $2.00, and the company's earnings and dividends are expected to increase at a constant growth rate of 10 percent. The required return on this stock is 20 percent. From a strict valuation standpoint, should Jane buy the stock?