1) Heath Foods bonds have 8 years remaining to maturity. The bonds the face value $1000 and yield to maturity of 8%. The pay interest annually and have a 9% coupon rate.

a) What is their current price of the bond?

b) What is the bond's current yield?

2) Thress Industries just paid a dividend of $1.50 a share. (i.e D0 = 1.50). The dividend is expected to grow 2% the year for the next three years and then 10% a year thereafter. What is the expected dividend per share for each of the next 5 years?

D1 = ?

D2 = ?

D3 = ?

D4 = ?

D5 = ?

3) Assume that the average firm in your companys industry is expected to grow at a constant rate of 6% and the forward dividend yield (the dividend a year from now divided by today's price) is 7%. Your company is about as risky as the average firm in the industry, but has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0 (1+g) = D0 x (1.50)) this year and 25% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D0) was $1.00, what is the value per share of your firms stock?

a) What is the discount rate for stocks in this industry?

b) What are the projected dividends for years 1, 2 and 3?

c) What is the estimated value of the stock in year 2?

d) What is the estimated value of the stock today?