Posted: February 8th, 2016

Calculate a price assuming Beta is also successful and holds Softek’s growth rate at 25% for two additional years.

Please answer the following questions and give detailed answers.

1- The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued five years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest rate is 14% today.
A) What are the prices of the two bonds at this time?
B) Discuss the result of part A in terms of risk in investing in bonds.

2-You are an investment analyst for a brokerage firm and have been asked to develop a recommendation about Softek for the firm’s clients. You’ve studied the fundamentals of the industry and the firm, and are now ready to determine what the stock should sell for based on the present value of future cash flows.
A) Calculate a value for Softek’s stock assuming product Alpha is successful but Beta isn’t. In other words, assume two years of growth at 25% followed by 6% growth lasting indefinitely.
B) Calculate a price assuming Beta is also successful and holds Softek’s growth rate at 25% for two additional years.