1. Our company forecasts to pay a $14.24 dividend next year, which represents 65% of its earnings. This will provide investors with a 16% expected return (or cost of equity =r). The firm's current return on equity is 30%. What is the value of the stock?
2. Given the following annual effective spot rates, find the present value of a 3-year bond paying 15% annual coupons and having a par value on $100. Time 1, annual effective spot 7.000%. Time 2, annual effective spot 6.000%. Time 3, annual effective spot 8.000%.