Question: a) Assume that a bond that pays annual interest has a par value of $1,000, a coupon of 8%, and a term-to-maturity of 25 years. The bond is purchased at a YTM of 7%. One year later, the bond is sold at a YTM of 9%. Calculate the bond’s price change over the year.

b) Calculate the value of a common stock whose dividends are expected to grow at an annual rate of 13% for the next five years and 8% thereafter. Last year’s dividend was $.75 per share. The stock’s RRR is 18%.

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