Q1-) Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments and have a YTM of 9 percent with five years to maturity. What is the current yield for bond P? For bond D? If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P? For bond D?
Q2-) The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $1,100 every six months over the subsequent eight years, and finally pays $1,400 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 8 percent compounded semiannually, what is the current price of bond M? Of bond N?
Q3-) Great Pumpkin Farms just paid a dividend of $3.5 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 14 percent return on the stock for the first three years, a 12 percent return for the next three years, and a 10 percent return thereafter. What is the current stock price?