Bond valuation - 1. A bond just purchased pays annual interest of 10 percent. In seven years it matures at its face value of $25,000. What price was paid if current yields on a bond of this risk are 8.5 percent? 2. A Sunfish bond is paying 10 percent interest for 20 years on a semiannual basis. Assume interest rates in the market (yield to maturity) decline from 12 percent to 8 percent: Face value: $100 a) What is the bond price at 12 percent? b) What is the bond price at 8 percent? c) What would be the percentage return on an investment bought when rates were 12 percent and sold when rates are 8 percent? 3. Bonds issued by the Tyler Food chain have a par value of $1,000, are selling for $1,080, and have 20 years remaining to maturity. Annual interest payment is 12.5 percent ($125), paid semiannually. Compute the yield to maturity. 4. Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which is also the amount of principal to be paid at maturity. The bonds are currently selling for $850. They have 10 years to maturity. Annual interest is 9 percent ($90), paid semiannually. Compute the yield to maturity. Equity valuation - 1. Lala Land Corp.(LLC) is experiencing super normal growth. Dividends are expected to grow at 35 percent per year during the next three years, 25 percent over the following year, and then 4 percent per year indefinitely. The required return on this stock is 12 percent, and the LLC distributed $5/share dividend last year. What is the stock price as per the Gordon growth model? 2. Dreamz Unlimited INC (DU) is growing quickly. Dividends are expected to grow at a 29 percent rate for the next two years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 10 percent and the company just paid a $1.50 dividend, what is the current share price? 3. Imaginary Corporation will pay a $9.90 per share dividend next year. The company decides to increase its dividend by 5.2 percent per year indefinitely. If you require an 13 percent return on your investment, what is the intrinsic value of the share? 4. Super star INC just paid a dividend of $5.50 per share. The company will increase its dividend by 50 percent next year and will then reduce its dividend growth rate by 10 percentage points per year until it reaches the industry average of 10 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Super star stock is 18 percent, what is the intrinsic value of the stock as per the Dividend discount model