**A3. (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years. If the required return on these bonds is 8% APR, what should be the market price of these bonds?**

**A13. (Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred dividend is nongrowing. What is the required return on Sony preferred stock?**

**A15. (Stock valuation) Let’s say the Mill Due Corporation is expected to pay a dividend of $5.00 per year on its common stock forever into the future. It has no growth prospects whatsoever. If the required return on Mill Due’s common stock is 14%, what is a share worth?**

**B15. (Interest-rate risk) A quick look at bond quotes will tell you that GMAC has many different issues of bonds outstanding. Suppose that four of them have identical coupon rates of 7.25% but mature on four different dates. One matures in 2 years, one in 5 years, one in 10 years, and the last in 20 years. Assume that they all made coupon payments yesterday.**

**a. If the yield curve were flat and all four bonds had the same yield to maturity of 9%, what would be the fair price of each bond today?**

**b. Suppose that during the first hour of operation of the capital markets today, the term structure shifts and the yield to maturity of all these bonds changes to 10%. What is the fair price of each bond now?**

**c. Suppose that in the second hour of trading, the yield to maturity of all these bonds changes once more to 8%. Now what is the fair price of each bond?**

**d. Based on the price changes in response to the changes in yield to maturity, how is interest-rate risk a function of the bond’s maturity? That is, is interest-rate risk the same for all four bonds, or does it depend on the bond’s maturity? **

**B17. (Default risk) You buy a very risky bond that promises an 8.8% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond. **

** a. You receive the coupon payments for two years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the end of 2.5 years. What is the realized return on your investment? **

** b. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?**

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