Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and a 10% coupon rate with interest being paid semiannually. The market rate of interest when the bonds were issued was 10%. Two years after the bonds were issued, the market rate rose to 13%. The most recent common-stock dividend for Olympic Corp was $3.45 per share. Due to its stable sales and earnings, the firm’s management predicts dividends will remain at the current level for the foreseeable future.

1) Are these bonds a premium or a discount bond?

2) Calculate the selling price for the bonds at the following time periods: 1) Time of issue 2) Two years after issue 3) Five years after issue

3) Calculate the selling price for the bonds at the following time periods assuming annual interest payments: 1) Two years after issue 2) Five years after issue

4) If the required return is 7%, what is the value of the common stock for Olympic Corp?