The fact that you can invest money and receive interest on it makes a dollar today worth more than a dollar received in the future. We use this to calculate the value of Common Stock, Preferred Stock and Bonds Payable. Calculate the problems below.

$1.$ If expected dividends grow at $2\%$ and the appropriate discount rate is $4\%,$ what is the value of a stock with an expected dividend one year from now of $$2\mathrm{.}45?$ Describe how you solved for the Stock Price.

$2.$ An issue of preferred stock is paying an annual dividend of $$3\mathrm{.}50.$ The growth rate for the firm's common stock is $5\%.$ What is the preferred stock price if the required rate of return is $10\%?$ Describe how you solved for the Stock Price.

$3.$ Midland Oil has $$1,000$ par value bonds outstanding at $13$ percent interest. The bonds will mature in $15$ years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the current price of the bonds under $3$ separate assumptions. If the present yield to maturity is:

a$.15$ percent

b$.13$ percent

c$.10$ percent

Based on your answers, explain the relationship between present yield and bond price?