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problem 2i 20 points suppose you hold a 6 percent...

Question: problem 2i 20 points suppose you hold a 6 percent...

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Problem 2i (20 points) Suppose you hold a 6 percent coupon bond with a par value of $1,000 that matures in 12 years and pays semi-annual coupons 1) If the bonds yield to maturity is 8 percent, what should be its current market value? 2) You believe that in one year, the yield to maturity will be 7 percent a. Will the bond price increase or decrease from its current market value? Explain why. b. Will the price be higher or lower than $1,000? Explain why. (No calculations required) 3) If you hold the bond for the entire year and the change in yield to maturity occurs, what would No calculations required) be your total return in dollars and percentage? Problemai (20 points) Your task is to value the stock price of Mare Co. with the Dividend Growth Model (DGM) in constant growth. You have the following information: Recent dividend per share (D) Risk-free rate (Rrf) Beta of the stock (B) Average stock return on the market (Rm) Estimated long-term dividends growth rate (g) $4.50 3.25% 1.60 11% 5% 1) Calculate the value of the stock of Mare Co. using the Dividend Growth Model (DGM) in constant growth. 2) The stock currently trades at S34.86 in the stock market would you recommend buying i?

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