1a.

Bank 1 has assets composed solely of a 10-year, 14.00 percent coupon, $3 million loan with a 14.00 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $3 million CD with a 10 percent yield to maturity.

Bank 2 has assets composed solely of a 7-year, 14.00 percent, zero-coupon bond with a current value of $2,677,410.23 and a maturity value of $6,699,600.06. It is financed by a 10-year, 8.25 percent coupon, $3,000,000 face value CD with a yield to maturity of 10 percent.

All securities except the zero-coupon bond pay interest annually.

a. If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and liabilities of each bank? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.

1b. A stock you are evaluating just paid an annual dividend of $2.40 Dividends have grown at a constant rate of 1.8 percent over the last 15 years and you expect this to continue

a. If the required rate of return on the stock is 12.5 percent, what is its fair present value?

b. If the required rate of return on the stock is 15.5 percent, what should the fair value be four years from today? 10 points (For ell requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)

1c. You bought a bond five years ago for $829 per bond. The bond is now selling for $780. It also paid $60 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond.