Part Two 1. Bond Valuation IBM 8 40 FA V = ?, F = $1,000, CR (coupon rate) = 8%, m = 2 (semiannual), and i, (discount rate) = 10% (rrr) P= PV (CF)= PV (Int; F)=PV (ann) + PV (Is) = PMT (PVIFA)+F(PVIF) VALUE = Price => solve for the price you are willing to pay with a 10% required return. 2. Internal Rate of Return IBM 10s 30 JJ $1,297.55 = INT (PVIFA) + F (PVIF) = $1,152.47 = INT (PVIFA) + Face (PVIF) wherein err = irr to make the equation true .err: $1,297.55 = (INT/2) [(1-((1/(1+ irr/2))))/(irr/2)] + F (/(1+irt/2))) Using the price as $1,297.55 = V, calculate the Internal Rate of Return for the investment 2n 2n EQUITY VALUATION Based on expected cash flow as represented with dividends: V = D/k or V=D)/(k-g) or V = S [D)/(1+k)"]+[D., (kg)/(1+k)" Given m = 12% 3. No growth: dividend has been and expected to remain $2 per year What is the price of this stock