Question 1:

1) Karan Electronics Inc. is expecting a period of intense growth and has decided to retain more of their earnings to help finance that growth. As a result, they are going to reduce the annual dividend by 12% a year for the next three years. After that they will maintain a constant dividend of $1.40 a share. Last year, the company paid $2.20 as the annual dividend per share. What is the market value of this stock if the required rate of return is 14%?

2 Tyler Inc. offers a 7.75% coupon bond with annual payments. The yield to maturity is 7.91% and the maturity date is 9 years from today. What is the market price of this bond if the face value is $1,000? Show the calculations in detail.