2. The Reggie White Company has issued 20 year bonds that have a coupon of 8%, they pay interest semi-annually. The bonds are known as the RWC Class A bonds, they have a face value of $1000.

a. One year after issue (19 years to maturity), your friend is considering RWC Class A bonds as an investment. However the market required rate of return for the RWC Class A bonds has decreased to 7.5%, the coupon rate remains at 8%.

What is the price of these bonds? (3 points)

b. When the bonds only have 4 years to maturity, they are trading at $1,080. What is their yield to maturity? (3 points)

c. The average P/E ratio in the industry is between 13 and 15. Earnings for the RWC company were $2.50 last year, what is their valuation range? If their current price is $60 is the company overvalued, undervalued or fairly valued.