Question $3$

$.$ Suppose a seven$-$year, $$1000$ bond with a $10\mathrm{.}46\%$ coupon rate and semiannual coupons is trading with a yield to maturity of $8\mathrm{.}78\%.(7$ marks$)$

a$.$ Is this bond currently trading at a discount, at par, or at a premium? Explain.

b$.$ If the yield to maturity of the bond rises to $9\mathrm{.}54\%($APR with semiannual compounding$),$ at what price will the bond trade?

II$.$ You own a car dealership and are trying to decide how to configure the showroom floor. The floor has $2000$ square feet of usable space. You have hired an analyst and asked her to estimate the NPV of putting a particular model on the floor and how much space each model requires: $(8$Marks$)$

Model NPV Space Requirement $($square

$ft)$

MB$345$ $$3000200$

MC$237$ $$5000250$

MY$456$ $$4000240$

MG$231$ $$1000150$

MT$347$ $$6000450$

MF$302$ $$4000200$

MG$201$ $$1500150$

III. Maynard Steel plans to pay a dividend of $$3\mathrm{.}03$ this year. The company has an expected earning growth rate of $3\mathrm{.}9\%$ per year and an equity cost of capital of $10\mathrm{.}9\%.(5$Marks$)$ a$.$ Assuming Maynard's dividend payout rate and expected growth rate remains constant, and Maynard does not issue or repurchase shares, estimate Maynard's share price. b$.$ Suppose Maynard decides to pay a dividend of $$1\mathrm{.}03$ this year and use the remaining $$2$ per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price.