1. Calculate the price of a bond with Face value of bond is $1,000 and:

a. Bond yield of 8.4%, coupon rate of 7% and time to maturity is 5 years. Coupon is paid semi-annually (Bond 1)

b. Bond yield of 7%, coupon rate of 8% and time to maturity is 4 years. Coupon is paid semi-annually

c. Calculate the price of Bond 1 right after the 5^th coupon payment.

2. Arcade Ltd issues both ordinary shares and preference shares to raise capital, in which 500,000 ordinary shares have been issued at the price of $10 and 100,000 preference shares with a par value of $100.

a. Company promises to pay an annual dividend rate of 6.5% per share for its preference shares. If similar investment has a rate of return of 10% p.a, what is the fair price of Arcarde's preference share?

b. Company also plans to pay dividend for its ordinary shares as follow: Y1 (next year): $0.8; Y2: $1; Y3: $1, after year 3, the dividend will growth at the rate of 3% and company's rate of return is currently 9%, what should be the fair price of each ordinary shares?