MINICASE You have recently graduated from a business school and joined SMART INVEST as a finan- and what rates of return they offer. In particular, you have to answer the following questions. cial analyst. Your job is to help clients in choosing a portfolio of bonds and stocks. Dinshawinan a. How is the value of a bond calculated? b. What is the value of a 5-year, * 1,000 par value bond with a 10 percent annual coupon, if the required rate of return is 8 percent? c. What is the approximate yield to maturity of an 8-year, ? 1,000 par value bond with a 10 percent d. What is the yield to call of the bond described in part (c), if the bond can be called after 2-years at a premium of 1,050. e. What is the general formula for valuing any stock, irrespective of its dividend pattern? f. How is a constant growth stock valued? 5. Magnum chemicals is a constant growth company which paid a dividend of 6.00 per share yes- terday (D =26.00) and the dividend is expected to grow at a rate of 12 percent per year forever. If investors require a rate of return of 15 percent (i) what is the expected value of the stock a year from now? (ii) what is the expected dividend yield and capital gains yield in the first year? h. Zenith Electronics paid a dividend of 10.00 per share yesterday (D. = 10.00). Zenith Electron- ics is expected to grow at a supernormal growth rate of 25 percent for the next 4 years before returning to a constant growth rate of 10 percent thereafter. What will be the present value of the stock, if investors require a return of 16 percent? i. The earnings and dividends of Ravi Pharma are expected to grow at a rate of 20 percent for the next 3 years. Thereafter, the growth rate is expected to decline linearly for the following 5 years before settling down at 10 percent per year forever. Ravi Pharma paid a dividend of 8.00 per share yesterday (D = 38.00). If investors require a return of 14 percent from the equity of Ravi Pharma, what is the intrinsic value per share