Question
1. To finance a new line of product, the Westchester Company has issued $1,000,000 worth of bond with a par value of $1,000, coupon rate
1. To finance a new line of product, the Westchester Company has issued $1,000,000 worth of bond with a par value of $1,000, coupon rate of 8 percent, and maturity of 15 years. Required: a) Compute the value of these bonds if bonds of similar risks required 11% return. b) Assume the current market price is $940. Will you buy this bond? c) What is the yield to maturity assuming the price in requirement a? d) Calculate the current yield assuming the price in requirement a.
Q2. In response to the stock market's reaction to its dividend policy, the Paper Company has decided to increase its dividend payment at a rate of 4 percent per year. The firm's most recent dividend is $3.25 and the required rate of interest is 9 percent. What is the maximum you would be willing to pay for a share of the stock?
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