Problem 1:
A10-year Treasury bond is issued with a face value of $1,000, paying interest of $60 a year. If market yields increase shortly after the T-bond is issued, what happens to the bond's:
coupon rate?
price?
yield to maturity?
Problem 2: Company Z-prime is like Z in all respects save one: Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Company Z earnings and dividends per share are expected to grow indefinitely by 5% a year. What is Z-prime's stock price? Assume next year's EPS is $15.