1)Owen Meany is considering the purchase of a $1,000 Amity Island Municipal Bond. The city is raising funds for a much-needed advertising campaign to promote its East Coast resort community. The stated coupon rate is 6 percent, paid annually. The bond will mature in 10 years. The YTM for similar bonds in the market is 8 percent.

a. How much will the annual interest payments be?

b. What is the market price of the bond today?

c. Is the interest received on a municipal bond generally tax free?

2)Assume Disney Studios is offering a corporate bond with a face value of $1,000 and an annual coupon rate of 12 percent. The maturity period is 15 years. The interest is to be paid annually. The annual YTM for similar bonds in the market is currently 8 percent.

a. What is the amount of interest to be paid annually for each bond?

b. What is the value of this $1,000 bond today?

c. What would be the present value of the interest and principal paid to holders of one of their bonds if the interest payments were made semi-annually instead of annually?

3)Assume that Intel Corporations $1,000 face value 9 percent coupon rate bond matures in 10 years and sells for $1,100. If you purchase the bond for $1,100 and hold it to maturity, what will be your average annual rate of return on the investment?

4)China S. Construction, Inc., is in the business of building electrical power plants in the eastern United States. Jack Godell and the rest of the board members of the rm have just announced a $4 per share dividend on the corporations common stock to be paid in one year. Because the quality of some of its recent projects is under attack by investigative television reporters, the expected constant dividend growth rate is only estimated to be 1 percent. The required rate of return for similar stocks in this industry is 16 percent.

a. What is the present value of the expected dividends from one share of China S. Constructions common stock?

b. What is the stocks dividend yield (D 1 /P 0 )?

6) The current listed price per share of a certain common stock is $15. The cash dividend expected from this corporation in one year is $2 per share. All market research indicates that the expected constant growth rate in dividends will be 4 percent per year in future years. What is the rate of return on this investment that an investor can expect if shares are purchased at the current listed price?

7)

a. What was Free Enterprises book value (net worth) at the beginning of 2016?

b. If the company had 750,000 shares of common stock authorized and 500,000 shares outstanding, what was the book value per share of common stock at the beginning of 2016?

c. Net income of Free Enterprise, Inc. was $5,610,000 in 2015. Calculate the earnings per share of Free Enterprises common stock.

d. The P/E ratio for a typical company in Free Enterprise, Inc.s industry is estimated to be 6. Using the EPS from part c) above, calculate the price of one share of common stock at the beginning of 2016, assuming that Free Enterprise commands a P/E ratio value equal to that of an average company in its industry.

e. What would you infer about the companys total assets shown on the balance sheet when comparing this calculated stock price with the companys book value per share?

f. Calculate the liquidation value of Free Enterprises common stock assuming the market value of the total assets is $50 million and the market value of total liabilities is $20 million, as estimated by your analyst.

8) Lucky Jackson is trying to choose from among the best of the three investment alternatives recommended to him by his full-service investment broker. The alternatives are a. The corporate bond of Star Mining Company has a face value of $1,000 and an annual coupon interest rate of 13 percent. The bond is selling in the market at $1,147.58. Of the original 20 years to maturity, only 16 years of the life of the bond remain.

b. The preferred stock of Supernova Minerals Company has a par value of $100 per share and it offers an annual dividend of $14 per share. The market price of the stock is $140 per share.

c. The common stock of White Dwarf Ores Company sells in the market at $300 per share. The company paid a dividend of $39 per share yesterday. The company is expected to grow at 3 percent per annum in the future. Which of the three alternatives should Lucky choose? Remember the priority of claims for bondholders, preferred stockholders, and common stockholders from Chapters 1 and 4.

Which of the three alternatives should Lucky choose? Remember the priority of claims for bondholders, preferred stockholders, and common stockholders from Chapters 1 and 4.

Free Enterprise, Inc., Balance Sheet December 31, 2015 (thousands of dollars) Liabilities Equity Assets 4,000 Cash Accounts Payable 10,000 Notes Payable Accounts Receivable 13,000 Inventory Accrued Expenses 400 Prepaid Expenses Total Current Liabilities Total Current Assets 27,400 Bonds Payable 11,000 Fixed Assets Common Equity 38,400 Total Assets Total Liabilities Equity 4,400 4,000 5,000 13,400 6,000 19,000 38,400