ASSIGNMENT:
The purpose of assignment is to solidify your understanding on the applications of the risk and return concepts and their role in valuing financial assets. The scores of this assignment will help in assessing the following learning goal of the course: "students successfully completing course will be able to Analyze risk return characteristics to assess valuation of financial assets".
(i) Describe and interpret the assumptions related to the problem.
(ii) Apply the appropriate mathematical model to solve the problem.
(iii) Calculate the correct solution to the problem.
Q1: A company has an issue of 12-year bonds that pay 5% interest, annually. Further assume that today's required rate of return on these bonds is 7%. How much would these bonds sell for today? Round off to the nearest $1.
Q2: A company just paid a dividend of $1, and the dividends are expected to grow at constant rate of 4% forever. If the required return of the stockholders is 12%, what is the price of this company's stock?