a. A corporate bond maturing in 8 years carries a 7% coupon rate. If the required yield to maturity on the bond is 6% and the interest is paid semi-annually, what should be the current market price of the bond ? (The first interest payment will be received 6 months from now.) Is the bond selling at a premium or discount? Why?
b. CC Inc. stock recently paid a dividend of $3. The company expects to boost the dividend at a rate of 15% for the next two years. Thereafter, the growth rate is expected to be 5%. The required return on the stock is 12%. What is the expected stock price one year from now just after next year's dividend is paid? (may ask for price today)