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1. A $1,000 par value bond pays a coupon rate of 4.1 percent. The bond makes semiannual payments,

and it matures in five years. If investors require a 5 percent return on this investment, what is the

bond's price?

(10 pts)

Use the following bond to answer questions 2 - 4.

A zero coupon bond matures in 10 years and offers a yield to maturity of 4.5 percent.

2. What is the price of the zero-coupon bond that has a par value of $1,000?

(10 pts)

3. Calculate the price one year later, when the bond has 9 years left before it matures (assume the yield

remains at 4.5 percent).

(10 pts)

4. What is the return that an investor earns if they buy the bond with 10 years remaining and sell it one

year later?

(10 pts)

5. Bavarian Sausage just issued a 10-year 6% coupon bond. The face value of the bond is $1,000 and the

bond makes semiannual coupon payments. If the bond is currently trading at $1,299.75, what is the

bond's yield to maturity?

(20 pts)

a.

1.29%

b.

8.06%

c.

2.58%

d.

4.03%

6. ABC Inc., just paid a $1.25 dividend and investors expect that dividend to grow by 4% each year

forever. If the required return on the stock investment is 11%, what is the price of the stock today?

(10 pts)

7. Investors believe that a certain stock will pay a $3 dividend next year. The market price of the stock

is $75, and investors expect a 10 percent return on the stock. What long-run growth rate in dividends

is consistent with the current price of the stock?

(10 pts)

8. Miller Juice, Inc. just paid a $3 dividend. The company is expected to pay a $3.50 dividend next year

and a $4 dividend in two years. After that, dividends are expected to grow at 3% forever. If investors

require a return of 10% on the investment, what should Miller Juice stock sell for today?

(20 pts)

a.

$44.15

b.

$47.14

c.

$41.23

d.

$50.00