1. Pittsburgh SteelWorks, Inc. has had steady earnings for the last several years and foresees this happening in the near future. PSW expects to pay a $3 dividend on its common stock in each of the next three years. Starting in year 4, the company expects to increase this dividend 4% per year indefinitely. What is the market value of the stock if investors during this time period require a 9% return on their investment? Please show all of your work.

2.

A bond for Germantown Industries that makes semi-annual coupon payments has an annual coupon rate of 4%, a $1,000 Face Value, 7 year maturity and annual yield to maturity of 6%. Please show your work.

a. Calculate the current value for the bond.

b. But you have a goal to secure the bond at a present value of $850. Assuming all else is the same for this semi-annual bond, what annual coupon rate would generate a bond value of $850?