Question 1:

Meteor Ltd is considering issuing bonds with a face value of $1000 that will mature in 20 years with an 8% annual coupon rate, and the interest will be paid semi-annually. Meteor is hoping to get an AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7.5%. However, Wendyis not sure whether Meteor'snew bonds will receive an AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8.5%.

Required:

What price will Wendy give these bonds if they receive either an A or an AA rating?

Question 2

The market price for an Orion $1000 face value, 10 year bond is $900. The bond has an 8% coupon but makes interest payments on a semi-annual basis.

Required:

Calculatethe bond's yield to maturity?

Question 3

Plutarch Corp. has recently developed a new product which is the first of its kind. Plutarch expects this will give it a significant first mover advantage in the market and that is expected to provide growth in earnings per share of 400% within the coming year, and 75% growth in each of the subsequent 3 years. After that time, it is expected competitors will have developed and brought to market similar products with the result that Plutarch would expect earnings growth to drop back to its normal level of 3% per year forever.Plutarch'scash dividend was 10 cents per share last year and is expected to remain at that amount for each of the next 5 years. In the sixth year, it is expected that the payout ratio will be 80% of the earnings per share, and the payout ratio is expected to remain at that level forever. The required rate of return onPlutarch's ordinary sharesis 20% per year and the latest earnings per share was 25 cents.

Required:

Calculate the price that Plutarch Corp. ordinary shares should be selling for in the market?