1. A bond issued by Greenview Corporation has a coupon interest rate of 6%. The present yield to maturity on similar bonds is 7%. Given this information, what can you determine regarding Greenview Corporation's bond?
a. Greenview Corporation's bond will sell at a price above par.
b. Greenview Corporation's bond will sell at a price that is equal to the face value of the bond plus the value of all interest payments.
c. Greenview Corporation's bond will sell at a price below par.
d. Greenview Corporation's bond will sell at a price equal to par.
2. Over the last twelve months, Eastview Corporation paid a dividend of $1.12 per share. This dividend is expected to grow over the next three years at a rate of 25%. It is then expected to grow at a normal, constant rate of 7%. Assume that the required rate of return (also the discount rate) is 12%.
What is the present value of the dividends during the supernormal growth years? What is the price of the stock at the end of the third year?
a. $4.20, $35.20
b. $1.40, $46.80
c. $1.40, $37.12
d. $2.40, $41.20
e. $4.20, $46.80