1) Suppose a ten-year, $1000 bond with an 8.2% coupon rate and semiannual coupons is trading for %1,035.49.

a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)?

b. If the bond's yield to maturity changes to 9.9% APR, what will be the bond's price?

2) Suppose a seven-year, $1,000 bond with an 8.2% coupon rate and semiannual coupons is trading with a yield to maturity of 6.63%.

a. If the yield to maturity of the bond rises to 7.11% (APR with semiannual compounding), what price will the bond trade for? (Round to the nearest cent.

3) Suppose you purchase a 10-year bond with 6.7% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.6% when you purchased and sold the bond, What is the annual rate of return of your investment?

4) Suppose Acap Corporation will pay a dividend of $2.89 per share at the end of this year and $2.99 per share next year. You expect Acap's stock price to be $52.55

in two years. Assume that Acap's equity cost of capital is 10.7%.

a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year?

c. Given your answer in (b), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (a)?

5) Laurel Enterprises expects earnings next year of $3.99 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be?