Q2ABC private limited as given the dividend of $5 last year and has promised to increase the dividend by 8% each year for the next four years.

a.Find out the dividend of each of the next four years.

b.If the stocks are selling at $120 at the end of fourth year, find out the price of stock today, assuming expected return as 12%.

c.Write a detailed comment on what will happen to the today's selling price of the stock if the expected return is increased from 12% to 16%.

d.If the stocks are selling at $90 today, find out the price of stock at the end of fourth year, assuming expected return as 12%.

e.Write a detailed comment on what will happen to the selling price of the stock at the end of fourth year if the expected return is decreased from 12% to 8%.

Q3Exerpt taken from Engro Corporations press release:

"Engro Corp is one of Pakistan's largest conglomerates, in operation for over 45 years, and with businesses ranging from fertilizers to power generation. Currently Engro Corp's portfolio consists of seven businesses which include chemical fertilizers, PVC resin, a bulk liquid chemical terminal, industrial automation, foods, power generation and commodity trade.

Engro Corporation Limited has announced the launch of the second issue of the Engro Rupiya Certificatessavings option, which provides investors with an unprecedented 14.5% (coupon) rate of return. This issuance follows the successful launch of the certificates in October 2010.

The second release of Engro Rupiya Certificates also offers profit payments twice in a year for a minimum amount of PKR 25,000, invested for a period of 3 years. The product offers investors the option to encash the certificates at any time, with the profit accumulated from the date of purchase to the date of encashment. Engro has also provided a unique service for the convenience of its customers, enabling certificate holders to conduct transactions and receive profit payments at home."

1.Assuming the yield to maturity on the bond is 11.25%, calculate the price of the bond at the time of issue

2.Assuming the yield curve is flat and doesn't shit, calculate the bond price two years after the issue?

3.Compare your answer to part 1 and justify.

4.Evaluate the relevance of the types of risk for this bond.