Exercise 1- Bond A is a 10-year U.S. Treasury bond. Bond B is a 10-year corporate bond. State whether the following statements are true or false? a. If you hold bond A to maturity, your return will be equal to the yield to maturity. b. If you hold bond B to maturity, your return will be equal to or less than the yield to maturity. c. If you hold bond A for 5 years and then sell it, your return could be greater than the yield to maturity. Exercise 2- Rework table 7.4 (book page 205) for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. The company will pay a dividend of $3.30 at the end of the first year. What value would an investor place on the stock? Exercise 3- Castles in the Sand generates a rate of return of 20% on its investments and maintains a plowback ratio of 0.20. Its earnings this year will be $2 per share. Investors expect a rate of return of 10% on the stock. a. Find the price and P/E ratio of the firm. b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.10. Exercise 4- Metatrends stock will generate earnings of $6 per share this year. The discount rate for the stock is 10%, and the rate of return on reinvested earnings also is 10%. a. Find both the growth rate of dividends and the price of the stock if the company reinvests the following fraction of its earnings in the firm: (i) 0%; (ii) 20%; (iii) 40%. b. Redo part (a) now assuming that the rate of return on reinvested earnings is 15%. What is the present value of growth opportunities for each reinvestment rate? Exercise 5-

Tattletale News Corporation has been growing at a rate of 10% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years. The last dividend paid was $4. The discount rate is 17% and the steady growth rate after 3 years is 2%.

a. What is your prediction for the stock price in 1 year? b. Calculate the expected rate of return. Exercise 6- Review table 2.7 (book page 198), which list the market values of several stocks. Update the table. Which stocks value has changed by the greatest percentage since 2020, when the table was created? Now recalculate book value per share. Have the book values for any firm changed? Which seems to be more stable, book or market value? Why?