11.4 Pacific Homecare has three bond issues outstanding. All three bonds pay $100 in annual interest plus $1,000 at maturity. Bond S has a maturity of five years, Bond M has a 15-year maturity, and Bond L matures in 30 years.

a. What is the value of each of these bonds when the required interest rate is 5 percent, 10 percent, and 15 percent?

b. Why is the price of Bond L more sensitive to interest rate changes than the price of Bond S?

12.8 St. John Medical, a surgical equipment manufacturer, has been hit hard by increased competition. Analysts predict that earnings and dividends will decline at a rate of 5 percent annually into the foreseeable future. If the firms last dividend ( D 0 ) was $2.00 and the investors required rate of return is 15 percent, what will be the companys stock price in three years?

12.9 California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firms dividend is expected to grow at a constant rate of 5 percent per year, and investors require a 15 percent rate of return on the stock.

a. What is the stocks value?

b. Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13 percent. Under these conditions, what is the stocks value?

c. Return to the original 15 percent required rate of return. Assume that the dividend growth rate estimate is increased to a constant 7 percent per year. What is the stocks value?