Group 4: CLO2 Valuation Principles (20 marks) a) Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability $16 -20% 0.25 $20 0% 0.30 $24 +20% 0.25 $28 +40% 0.20 Assuming that Phoenix is not expected to pay any dividends during the coming year, determine th e coefficient of variation for the rate of return on Phoenix stock. (6 marks) b) Chill Pill Pharmaceuticals is expecting a growth rate of 14% for the next two years due to its new drug. Thereafter it should level to an 8% growth rate. The last dividend paid was $0.65 per share. What price should the stock sell for if investors require 12% return? (7 marks) c) Five years ago, the city of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent an d 20 years to maturity. If this bond pays interest semi-annually, what is the value of this bond to an investor who requires a 9 percent rate of return (7 marks)