Unit $9$ study exercise

Ali is evaluating issuing bonds for his company, and he discusses the various characteristics of a bond with his colleague, and he asks the following question:

$1-$ What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value.

Ali finally decides to issue the bond for his company. A $15$year, $6\%$ coupon bond pays interest annually. The bond has a face value of $$1,000.$

$2-$ What is the change in the price of this bond if the market yield to maturity rises to $6\mathrm{.}5\%$ from the current rate of $6\mathrm{.}25\%?$

Ali then asks his colleagues about the return of the bond and makes the comment "Investors who purchased bonds several years ago enjoyed double$-$digit yields. These same investors today are complaining loudly about the current low single$-$digit returns. Are investors that much worse off today?"

$3-$ Explain what investors should be considering and how to determine whether they are better off or worse off today than they were several years ago.

Ali then assumes the real rate of interest on $1-$year, $10-$year, and $30-$year bonds is $3\%.$ He also assumes the rate of inflation is expected to be $3\%$ for the coming year.

$4-$ Considering only an inflation premium, construct an example showing how an expected increase in the rate of inflation leads to an upward$-$sloping term structure via the Fisher effect? Then, explain how the addition of interest rate risk will affect your results.

Ali's company announces next dividend will be $$2\mathrm{.}45$ per share. The company will increase its dividend $20\%$ the year after and will then reduce its dividend growth rate by $5$ percentage points per year until it reaches the industry average of $5\%$ dividend growth, after which the company will keep a constant growth rate forever. $5.$

$5.$ If the required return for investors is $11\%,$ what will the price of stock be in year $2?$ What approach of dividend is being implemented in this scenario?