1. A 10 year maturity bond with a coupon rate of 6.25% and face value of $1,000 makes semi-annual coupon payments. What is the bond’s yield to maturity if the bond is selling for:

(a) 900?

(b) 1,000?

(c) 1,100?

2. Large Industries annual bonds are selling at 102 (i.e., the price is $1,020 for the $1,000 bond). There are 7 years remaining until maturity on the bonds and the yield to maturity is 5.25%. Find the coupon rate. (Note: you may have to use a trial and error solution method)

3. Below are the data for two stocks, both of which have a discount rate of 10 percent: Stock A Stock B Return on equity 11% 12% Earnings per share $2.20 $.90 Dividends per share $ .95 $.50

a. What are the dividend payout ratios for each firm?

b. What are the expected dividend growth rates for each firm?

c. What is the estimated stock price for each firm?

d. Which stock has the higher market value of equity?

4. You have forecast that United Sports, Inc. will pay a dividend of $1.60 next year (in time 1), $2.00 two years from now (in time 2) and $2.20 three years from now (in time 3). For dividends beyond three years, you assume they will increase at 5% per year from the prior year. If the discount rate is 9%, calculate a fair price for the stock of United Sports, Inc