Hello,

I am looking to solve the following:

Finally, to finance the strategy suggested by its marketing department, DuraBike must liquidate some investments due to tightened borrowing requirements. The company own two types of investments which can be sold: (i) Treasury bonds with $1,000 face value, 10 years to maturity, annual coupons of $50 and yield to maturity of 4% per year, and (ii) ordinary shares of another company, XYZ, which just paid a dividend of $0.50 per share, with dividend growth prospects of 5% per year and required rate of return of 10%.

1. If the market price of the Treasury bonds is currently at $1100 per unit, whereas the stock of XYZ is trading at $10 per share, which investment should DuraBike sell to raise the necessary funds? Explain the reasons behind your decision.

2. What are the Intrinsic value of the treasury bonds and Intrinsic value of share XYZ