Chapter 6 P6-15 Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate.

Chapter 6 P6–15 Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.a. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?b. Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond.c. If the required return were at 12% instead of 10%, what would the current value of Complex Systems’ bond be? Contrast this finding with your findings in part a and discuss.Chapter 7 P7–6 Common stock valuation—Zero growth Scotto Manufacturing is a mature firm in the machine tool component industry. The firm’s most recent common stock dividend was $2.40 per share. Because of its maturity as well as its stable sales and earnings, the firm’s management feels that dividends will remain at the current level for the foreseeable future.a. If the required return is 12%, what will be the value of Scotto’s common stock?b. If the firm’s risk as perceived by market participants suddenly increases, causing the required return to rise to 20%, what will be the common stock value?c. Judging on the basis of your findings in parts a and b, what impact does riskhave on value? Explain.

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