BONUS (2pts) Use several examples to explain financial engineering, such as what Mike Milken did, what mortgage/asset securitization is and the role it played in the 2008 crisis, what STRIPs and TIPs are and what callable and convertible bonds are. Question 12 (4.5 points) Saved Company XYZ has reported a trailing-twelve-month earnings-per-share of $0.5 with 120 million common shares outstanding. Its ROA (Return On Assets) is 0.1 and debt- to-equity ratio is 2. The company has just paid out $40 million dividend to its share holders. XYZs beta is 1.5. Risk free rate is 1%. Expected market return is 8%. Label your answers for questions 1 - 4. 1) Please use the constant dividend growth DDM (dividend discount model) to value XYZ's stock? Show work for partial credit. 2) If currently, XYZ's stock is trading at $21.63, then what would you do according to the results from question 1)? 3) You are worried about the news that gas price may continue to rise, and have adjusted the expected market return accordingly down to 6%. Applying the constant dividend growth DDM. what result would you get? What would you do then to value the 4) Proceed from 3), if you estimate that XYZ's dividend is going to grow at 8%, 6% and 4% respectively for the next 3 years (year 1, 2 and 3) before slowing down to a 2% annual growth rate perpetually, what is the valuation of its stock now? + 08 Paragraph B TU E