Problem 1

Four and a half years ago, I purchased at par, a 10 year 6% coupon bond assuming that it pays semi-annual interest. Today the market rate of interest is 4% and I'm considering to sell the bond.

a.Since I'm selling the bond today....

i.How much should I sell the bond for?

ii. The current yield on the bond?

iii.What will be my annual holding period return on the bond?

b.Supposedly my friend offers me a price of $1125 for the bond today. Would I be willing to sell the bond to her?

Problem 2

TESLA is a relatively young tech company.It is going through a period of high growth and has thus decided not to pay any dividends until the end of year 6.At the end of year six it will pay a dividend of $two.This dividend will grow at a rate of 25% for the next 4 years.After that TESLA pledges to maintain a constant 5% growth rate in dividends for forever.How much will I pay for a share of TESLA today? Required rate of return is 18%.