1. Compare THREE (3) differences between equity and bond financing.

(6 marks)

2. Hang Seng Co. is expected to pay dividend of $1.00 at the end of this year. Thereafter, the dividends are expected to grow at the rate of 25 percent per year for 2 years and then drop to 18 percent for one year, before settling at the industry average growth rate of 10 percent indefinitely. If you require a return of 18 percent to invest in a stock of this risk level, how much would you be justified in paying for this stock?

(7 marks)

3. You are given the following information on two traded bonds making semi-annual coupon payments. Compute yield of maturity for each bond.

Bond	Face Value	Coupon	Maturity	Price
A	$1,000	3%	12 years	$850.10
B	$1,000	10%	12 years	$970.00

(12 marks)