Sample Problem 3-1. Determination of Bonds Rate The Violeta Corporation has a bond outstanding with P90 annual interest payment, a market price of P820, par value of P1,000, and a maturity date in five years. Find: a. The coupon rate. (Ans. 9%) The current rate. (Ans. 10.98) C. The approximate yield to maturity. (Ans.14.13%%) Sample Problem 3-2. Choosing between two debt financing An investor must choose between two bonds: Bonds A pays P80 annual interest and had a market value of P800. It has 10 years to maturity. Bonds B pays P85 annual interest and had a market value of P900. It has 2 years to maturity. Compute the current yield on both bonds. b. Which bond should be select based on your answer to part (a)? C. A drawback of current yield is that it does not take into consideration the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.36%. What is the approximate yield to maturity on Bond B? d. Has your answer changed between parts (b) and (c) of this question in terms of which bond to select? Sample Problem 3-3. Interest rates on zero-coupon rate bond A 20-year, P1,000 par value zero-coupon rate bond is to be issued to yield 11 percent. a. What should be the initial price of the bond? (Take the present value of P1,000 for 20 years at 11 percent) b. If immediately upon issue, interest rates dropped to 9 percent, what would be the value of zero-coupon rate bond? C. If immediately upon issue, interest rates increased to 13 percent, what would be the value of zero-coupon rate bond? Sample Problem 3-4. Determination of Stock Price You are checking a financial analyst's recommendation. The analyst projects a company's stock price to be a P72 per share in three years. The most recent annual dividend was P1 68 per share. The analyst expects that dividend to grow at 9.8 percent annually. Given a 13.5 percent required return, the analyst claims the stock is undervalued at the current price of P54; thus he strongly urges investors to buy it. Using three assumption, is the stock really undervalued