Q1. A company issued 20-year bonds with par value $1,000 two years ago at a coupon rate of 5 percent. The bonds make semiannual coupon payments. The yield to maturity on this bond is 4 percent. Calculate the current yield of the bond.

Q2. A company has an odd dividend policy. The company will pay a dividend of $3 per share next year and has announced that it will increase the dividend by $5 per share for each of the subsequent four years and then maintains a constant 2% growth rate. If you require a return of 8 percent on the companys stock.

A. How much will you pay for a share today? B. At the price you are willing to pay for, what is the dividend yield in the first year?

Q3. A project has the following cash flow with a discount rate of 12%: Annual cash flows:

Year 0 Year 1 Year 2 Year 3 Year 4

$ -520,000 $ 170,000 $ 210,000 $ 225,000 $ 195,000

$520,000 is used in purchasing an equipment for the project only.

Compute the following:

Payback period;

Discounted Payback period;

NPV;

ProfitabilityIndex;

Average Accounting Return, assuming that the cash flow shown is the income before

tax and depreciation and ignoring the tax effects.

Should the project be accepted. Explain.