Assignment One: (Complete questions and must show work)
1) Inca Corp, issues a $1,000 par, 10-year 7% coupon bond. The bond makes SEMIANNUAL coupon payments. If the required return on the bond is 10%, what is the bond’s price?
2) Bono Corporation issued a 30-year bond with a $1,000 par value. The bond pays a 9% coupon annually. If investors require a 12% return, what is the value of the bond?
3) Syntex Inc. just issued a 5-year, 12% coupon bond. The bond has a par value of $1,000 and makes semiannual coupon payments. If investors require a 10% return, what is the bond’s price?
Assignment Two: (Complete questions and must show work)
1) Flyers Aviation Corporation just paid a $1.45 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 12%, which should be the price of the stock today?
2) A stock just paid a $2.00 dividend this morning, you believe that dividends will grow constantly starting today at a rate of 6% per year. If you require a 10% return to own this stock, what is a fair price to pay for the stock?
3) Bombay Inc. developed a new product which analysts believe will result in rapid growth of 10% over the next 2 years, and then reach a steady growth rate of 6%. The company just paid a $2.50 dividend and the market’s required rate of return on this stock is 12%. What is the value of Bombay Inc. stock?
4) Jensen Sports has outstanding an issue of preferred stock with a par value of $100. It pays an annual dividend equal to 6% of par value. If the required return on Jensen preferred stock is 8%, and if Jensen pays its next dividend in one year, what is the market price of the preferred stock today?
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