1. What is the value of 15-year corporate bonds, with a coupon rate of 9%, if current interest rates on similar bonds is 8%? How much would the value change if interest rates increased to 10%? Under what conditions will this bond trade at par (face value)?
2. What is the value of stock in a company that currently pays out $1.50 per share in dividends and expects these dividends to grow 6% a year forever? (You can assume that investors require a 13% return on stocks of equivalent risk.)
3. What is the value of stock in a company that currently pays out $1.00 per share in dividends, and expects these dividends to grow 15% a year for the next 5 years, and 6% a year forever after that? (You can assume that investors require a 12.5% return on stocks of equivalent risk and that the dividend payout ratio will double after the fifth year.)
4. You buy a 10-year zero-coupon bond, with a face value of $1000, for $300. What is the rate of return you will make on this bond?
5. You are reviewing an advertisement by a finance company offering loans at an annual percentage rate of 9%. If the interest is compounded weekly, what is the effective interest rate on this loan?