$1.$ Landon Enterprises can earn a $20\%$ rate of return on new projects from equity. The firm plans to retain $30\%$ of earnings back into the firm and pay the rest out as dividends. Earnings for this year will be $$3$ per share. The current rate of return on similar stocks is $12\%.$

a$.$ What is the firm$$s earnings growth rate?

b$.$ Based on this data, what would be the firm$$s current stock price?

c$.$ If the firm pays all of its earnings out as dividends, what would the stock price be$?$

d$.$ Based on the above, find the firm$$s PVGO.

$2.$ Cameron Corporation is offering a new bond issue. It has a $$1000$ par value, an $8\%$ coupon rate and pays annual interest. It has a $9$ year term. Current market interest rates have fallen to $7\%$ during the regulatory filings for the bond.

a$.$ Based on current conditions, what will the market price of Cameron$$s bonds be$?$

b$.$ You bought one of the bonds at issue but one year later need cash and have to sell it$.$ Now the current market rate of interest is $6\%.$ What will your bond price be under these conditions?

c$.$ Based on $($a$)$ and $($b$),$ what would your one year return on your investment be$?$

$3.$ You are making a portfolio choice between a share of stock and a bond. You intend to invest your money in one or the other $($but not both$)$ for one year.

a$.$ The stock is currently selling for $$58$ and analysts forecast that in one year it will sell for $$74.$ Calculate the one year return on holding the stock.

b$.$ The bond you are considering is currently selling at $$965$ and will be redeemed at par $($$$1000)$ in one year. Calculate the one year return on holding the bond.

c$.$ Based on the above, which would you invest in and why?