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# 1. Garvin Enterprises' bonds currently sell for \$1,150. They have a 6-year maturity, an annual coupon of \$85, and a par value of \$1,000. What is

1. Garvin Enterprises' bonds currently sell for \$1,150. They have a 6-year maturity, an annual coupon of \$85, and a par value of \$1,000. What is their current yield?
2. Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of \$1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?
3. McDonnell Manufacturing is expected to pay a dividend of \$1.50 per share at the end of the year (D1 = \$1.50). The stock sells for \$34.50 per share, and its required rate of return is 11.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

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Solutions:
1. The Cash Flows are as follows:
Year Cash Flows
0
-1150
1
85
2
85
3
85
4
85
5
85
6
1085
The Current Yield is the discount rate at which the Present Value of Outflows = Present
Value of...

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