Suppose you own a bond that pays $75 yearly in coupon interest and is likely to be called in two years (because the firm has already announced that it will redeem the issue early). The call price will be $1,050. What is the price of your bond now, in the market, if the appropriate discount rate for this asset is 9%?

Your broker has advised you to buy shares of Hungry Boy Fast Foods, which has paid a dividend of $1.00 per year for 10 years and will (according to the broker) continue to do so for many years. The broker believes that the stock, which now has a price of $12, will be worth $25 per share in five years. You have good reason to think that the discount rate for this firms stock is 22% per year, because that rate compensates the buyer for all pertinent risks. Is the stocks present price a good approximation of its true financial value?