1. There is a bond that currently has 16 years until maturity and the yield to maturity on the bond is 5.96%. If the bond pays semi-annual coupons of $39.95, determine the following: a. What is the price of the bond today? b. What is the current yield on the bond? c. If the yield to maturity on the bond decreases to 5.25% over the course of 1 year, what will the new price of the bond be one year from now?
Please show formula.
2. You are trying to estimate the value of McGillicutty's stock. Your research has indicated that you can expect a growth rate in their cash flows (and dividends paid) of 15%, 13%, 10% and 8% over the next 4 years, followed by a constant growth rate of 4% thereafter. The most recent dividend paid by the company was $2.50 per share. The company has a very high level of risk - their beta is 2.4. The risk free rate is 2.2% and the expected return on the market is 9.5%. a. What is the required rate of return on the stock? b. What are the dividends that are expected to be paid over the next 5 years? c. What is the value of the stock today?