Problem 1: Valuation of Bonds and Shares (20 Marks) Suppose that Kathmandu Holdings Limited (KMD) issued a bond with 10 years until maturity, a face value of $1,000, and pay semi-annual coupon at 7% (APR). The yield to maturity on this bond when it was issued was 8%. A. Is this bond currently trading at a discount, at par, or at a premium? Explain. (2 marks) B. What was the price of this bond when it was issued? (2 marks) C. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? (3 marks) D. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? (3 marks) Assume Boral Corporation will pay an annual dividend of $0.60 one year from now. Analysts expect this dividend to grow at 9% per year thereafter until the fifth year. After then, growth will level off at 3% per year. The firm's equity cost of capital is 5%. Use the dividend-discount model to answer the following questions. E. What is the present value of the first five dividend payments? (4 marks) F. What is the terminal price of Boral at time t=5? (3 marks) G. What is the value of a share of Boral stock now? If the firm's share price is currently trading at $40, will you sell or buy the shares