1. What is the price of a bond with a 10% annual coupon and 12 years to maturity when market yields are 8.6%? What is the price with the same facts except the coupon pays semi-annually?
2. Firm A just paid a dividend of $2.50 per share. This dividend is expected to grow at a rate of 18% over the next three years and then grow at a rate of 3% after that into the foreseeable future. If Firm A’s cost of equity is 11 percent, estimate the intrinsic value of its common shares today.