WeCall Ltd. has an outstanding issue of bond with a par value of $1,000, paying 8 percent coupon rate semi-annually. The firm just paid a dividend of $2.70 per share. The dividends are expected to grow at 5.0 percent for next 2 years. i.e. year 1 and 2, and after year 2, dividends are estimated to grow constant rate at 4 percent thereafter indefinitely. Based on market information, government bonds yield for 10-year maturity is 5 percent, market expected return is 15 percent, and beta of WeCalls stock is 1.5. Assume no market friction and no taxes. Required:

(a) WeCall Ltd. has issued a bond 20 years ago. What is the bond price assuming 10 percent rate of current interest rate today?

b.) If interest rate is predicted to increase, what is the impact on the bond? What characteristics of the bonds would be affected the most by an interest rate increase?

(c) Assume that the forecasted dividends and the required rate of return are the same one year from now, as those forecasted today. What is the intrinsic value of the stock today (P0), and one year from now (P1), just after the dividend has been paid in year one?