Mika works for investment company and is currently analysing two bonds. Today is 1 January 20X2 and the following bonds mature on 31 December of the relevant year.

	Bond A	Bond B
Face value	$100	$100
Quoted coupon rate	5%	7%
Coupon frequency	Annual	Semi-annual
Years to maturity	6	4

(i) Assist by calculating the quoted price of each of these bonds, assuming that they are both trading at a yield of 6%. (ii) Why should Sara also consider the credit ratings on the two bonds respectively? Explain the role of ratings in bond issuance and the impact of a high rating on both the market price and market yield of the bond

The company which issued Bond B is going through a period of rapid expansion but long-term growth prospects are poor. The board of directors is meeting to consider the best dividend policy for the foreseeable future. They agree on a constant dividend of $2 per share in perpetuity. The rate of return demanded by investors is 4% a year. Calculate the companys share price, assuming that the next dividend is paid tomorrow.