SECTION B Instruction: Complete ALL questions from this section.

Question 1 A. AG Motors common stock currently pays an annual dividend of $3.60 per share. The required return on the common stock is 12%. If dividends are expected to grow at a constant annual rate of 6%, what is the current market price of the common stock? (6 marks)

B. Don Coley wishes to estimate the value of its outstanding preferred stock. The preferred issue has a $180 par value and pays an annual dividend of $16.40 per share. Similar-risk preferred stocks are currently earning an 18% annual rate of return. What is the market price of the outstanding preferred stock? (3 marks)

C. If, at present, you have $28 000 invested at a rate of 9% per annum, approximately how many years will it take for the investment to triple? (5 marks)

D. If you wish to save $1 500 000 in five years, how much would you need to deposit at the start of each quarter to achieve this goal, assuming an interest rate of 8% compounded quarterly. (6 marks) (Total 20 marks)

Question 2 A. You own a bond that pays $30 in annual interest, with a $1 000 par value. It matures in 20 years. Your required rate of return is 4%. Calculate the value of the bond. (4 marks)

B. JNBC Motor company issued bonds with a 10-year maturity par value of $1 000, a 10% coupon rate and semi-annual interest payments. If the bond was sold for $916.42, what was the YTM of JNBC bonds at the time of the issue? (5 marks)

C. Explain interest rate risk as it relates to premium and discount bonds. (4 marks)

D. A bank is offering a five-year term deposit that will pay 9% per annum compounded quarterly. If $180 000 was invested in this term deposit: i. how much money will you have at the end of four years? (4 marks) ii. what is the EAR? (3 marks) (Total 20 marks)