Answer No. 3

Part 2. CASE ANALYSIS Direction: Please refer to each of the short cases provided in each of the items. Provide the required output. (15 marks) 1. Calculate the value of a bond that will mature in 14 years and has a $1,000 face value. The annual coupon interest rate is 5 percent, and the investor's required rate of return is 7 percent (3 marks correct process + 2 marks correct answer) = 5 marks 2. A stock was issued today which is expected to pay an annual dividend of BD 8.00 per share. If the discount rate is 8%, how much should you pay for the stock? Assume that the stock will go constantly until infinity. (3 marks correct process + 2 marks correct answer) = 5 marks 3. Compute the value of a bond that has a BD 2,000.00 par value and a 3% coupon interest rate. The issue pays interest annually and has 5 years remaining to its maturity date. What is the value of the bond if bonds of similar risk are currently earning a 5% rate of return? (3 marks correct process + 2 marks correct answer) = 5 marks