1. ABC Ltd., issued a 20 year zero coupon bond on 1 July 2016. It is now 1 July 2020. The current yield to maturity for the bond is 5% p.a.

a. What is the price per $100 for this bond today?

b. If, over the next 12 months market rates for this type of bond were to recover to 4% p.a. what rate of return would an investor who purchased the bond today have earned if they sold the bond on 1 July 2021?

2. What is the expected dividend to be paid in 5 years if a dividend of $1 was just paid yesterday, dividends are expected to grow at a constant 5% annual rate, and the firm has a 15% expected return?

3. What rate of return is expected from a share that sells for $2.50 per share, pays $0.25 annually in dividends, and is expected to sell for $3.00 per share in one year?

4. What is the current price of a share for a firm with $25 million in balance-sheet equity, 2,500,000 shares outstanding, and a price/book value ratio of 2?

5. Share C has a current price of $25.00, a beta of 1.25, and a dividend yield of 6%. If the risk-free rate is 5% and the market portfolio is expected to return 14% p.a., what should Share A sell for at the end of an investor's 2-year investment horizon?

6. If, as a result of the disruption caused by the Covid-19 pandemic, the share market return in 2020 turns out to be 20%, explain what will happen if we use a historical average to estimate the expected market risk premium next year. Discuss whether this makes sense and what we should do about it.