a) Outstanding bonds at Rolls Royce Inc. carry a rating of AA3. Discuss in detail (a) the factors that determine a bond's rating and (b) the relationship between a bond's rating and investors' required rate of return. (7 marks) b) Maddy Co is a public limited company which has managed to increase earnings over the last year. As a result, the board of directors has increased the dividend payout ratio. The last dividend paid by Maddy Co. was 1.50. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price? (8 marks) c) Which of the following shares are over-valued? Draw the Security Market Line. A B C Beta 0.5 1.2 0.8 Current rate of return 6% 12% 8% The risk-free rate is 5% and the return on the market index is 10%. (10 marks)