Reference no: EM132554345

a. Mr. James has two coupon bonds with different maturities. Bond A has 10 years of maturity, while bond B has 30 years of maturity. Both the bonds have 10% coupon rates paid annually and a par value of $100. If the yield to maturity changes from 5% to 6%, what is the percentage change in the price of each bond?

b. Nimkin Inc. has recently developed a bakery product. Due to the positive response from the customers, the company is planning to expand by investing all its earnings. This year, the firm had $2 per share as the earnings. The growth rate in these earnings is expected to be 20 percent annually until the end of year 4. Investors think that at the end of year 4, the company will pay 60 percent of its earnings as dividends. The growth rate will reduce to 4 percent. What is the value of the firm's share today If the cost of equity capital is 8 percent?

GIMINI Inc. has 217 million outstanding shares and expects $860 million earnings at the end of this year. The company plans to payout 50% of its earnings in total (paying 30% as a dividend and using 20% to repurchase shares). If the firm's earnings are expected to grow by 7.5% per year, and these payout rates remain constant, determine GIMINI's stock price. Assume that cost of equity capital is 10%.