1. What will an investor pay for a zero-coupon bond that has a $2,000 face value, a 25-year maturity, and a 7% yield to maturity?
a. $368.50
b. $257.98
c. $316.29
d. $452.10
2. When presented with an investment opportunity, Jospeh knows that calculating the interest rate associated with that investment is really important. Currently, he is evaluatiing a stock that will pay its next dividend in the amount of $6.50, and has a constant dividend growth rate of 5%. He can buy this stock for $65 per share.
What is the discount rate associated with this stock?
a. 10%
b. 18%
c. 15%
d. 12%