Question 1

Wojewodzki Corporation issued a 5-year bond at a coupon rate of 5%. The coupon is paid annually. The face value of the bond is $1,000. At the day of issuance, the bond was trading at yield to maturity of 8%.

(a) What is the price of this bond.

(b) What is this bond's current yield.

(c) Is this bond a discount or a premium bond? and why?

(d) What is the price of the bond issued by Wojewodzki Corporation, if the coupons are

paid semi-annually.

(e) Why as interest rates increase, bonds' prices fall and as interest rates fall, bonds' prices increase?

(a) What is the current share price of the common stock of the company that is expected to pay a constant dividend of $2 per year if the required rate of return is 15%.

(b) What is the current share price if the company starts increasing dividends by 3% per year beginning with the next dividend. The required rate of return stays at 15%.

(c) Michal Corp.'s stock is selling for $10.50. It has just paid a $1 dividend and dividends

are expected to grow at 5% per year. What is the required rate of return.

(d) What is the dividend yield for Michal Corp.'s stock.

(e) What maybe the THREE differences between common stock and preferred stock.