Question

1.

A $1,000 bond with 5 years left to maturity pays an interest payment semiannually with a 6% coupon rate and is priced to have a 8% yield to maturity.

a) Calculate the bond's price.

b) If this bond is now selling for $1,100 is it a good buy or a good sell? Why?

c) If required rate of return (YTM) is 10% would you expect a lower or a higher price of the bond. Why?

2.

a. Consider a firm with 9% growth rate of dividends expected in the future. The current year's dividend was $2.1. What is the fair present value of the stock if the required rate of return is 13%?

b. A preferred stock from Hecla Mining Company pays $5 in annual dividends. If the required rate of return on the preferred stock is 8% what is the fair present value of the stock?