Question
a. A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest
a. A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually. (Assume a face value of $1,000 and annual coupon payments). If the bond has a yield to maturity of 9% one year from now, what will be the rate of return on your bond investment? That is, what is your percent gain from your investment if you buy the bond today and sell it next year? b. Zoom Inc. is expected to pay a $5 dividend to its shareholders next year (year 1). Dividends are expected to grow at a constant rate of 10% between years 2 and 5. The steady growth rate of Zoom after year 5 will decrease to 4%. Calculate the price of the stock today given a 20% discount rate.
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