Qustion1:

What is the price of a one-year zero-coupon bond with a face value of $1 million if the annual interest rate is (a) 6%, (b) 8%, (c) 10%, and (d) 12%? Sketch a rough graph of your results. What general relationship between price and interest rates is being demonstrated?

question2:

Suppose that you are considering investing in a debt security that promises to pay 7.5% p.a. semi-annually in arrears for six years. What is the value of this security if its yield is 7% and its face value is $100,000?

Question 3: You wish to value a company that paid a dividend of $1.23 per share yesterday. Furthermore, you are aware that five years ago the company paid a dividend of $0.80 and in the interim years the dividend paid has grown at a constant rate.(a)What has the annual growth rate in dividends been during the past five years?(b)If dividends are expected to grow at the same annual growth rate for the foreseeable future, what is the maximum price that you would be willing to pay for a share in the company if you require a return on equity of 15% p.a.?