The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? 50*11.44+1000*.5138 = 1086 • 5-13 Yield to Maturity and Current Yield You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%.
Text Problem Sets and Concept and Principles Summary FIN 571 Text Problem Sets and Concept and Principles Summary Problem A3: (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years. If the required return on these bonds is 8% APR, what should be the market price of these bonds? PMT -33.75 FV -1000 N 17 Rate 4% Market Price $923.96 Fair Value of a bond = C/r*(1-1/(1+r)^n)+M/(1+r)^n Assuming that it’s a semi-annual bond with face value of $1000 A13. (Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred dividend is non-growing.
What is the total profit or loss to the investor? Use a risk-free rate of 4% and assume this is a European option where the stock does not pay any dividends. (Points : 20) 4. On March 1, a company declared quarterly dividends of $2 per share to all common stock shareholders as of March 15. The ex-dividend date is March 19 and there are 1 million shares outstanding.
Similar non-convertible bonds are priced to yield 10 percent. The bond matures in 10 years stock in Reliance sells for $ 36 per share. Q1) What are the conversion ratio, conversion price, and conversion premium? Q2) What is the straight bond value? Q3) What is the conversion value?
Chapter 13 1. A $1,000 bond has a coupon of 6 percent and matures after 10 years. a. What would be the bond’s price if comparable debt yields 8 percent? Price = $1,000 x 0.4632 + $1,000 x 6% x 6.7101 Price = $463.20 + $402.61 Price = $865.81 b.
4-5 Multiyear Future Value How much would be in your savings account in eight years after depositing $150 today if the bank pays 8 percent per year? (LG4-3) FV8 = 150 × (1 + 0.07)8 150 × 1.71818618 Answer: 257.73 4-7 Compounding with Different Interest Rates A deposit of $350 earns the following interest rates: a. 8 percent in the first year. b. 6 percent in the second year.
If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? Answer: Dividend Yield = Dividend / Share price = 0.88/22 = 4% Capital Gain Rate = (End of year stock price – Share price today) / Share price today = (23.54 – 22) / 22 = 7% Total expected return (Equity cost of capital) = 4% + 7% = 11% 9-5 No Growth Company NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? Answer: Assume: dividends are paid at the end of the year Stock pays a total of $2.00 in dividends per year. Valuing this dividend as a perpetuity: P = $2.00 / 0.15 = $13.33 9-6 Value of Operations of Constant Growth Summit Systems will pay a dividend of $1.50 this year.
If the required rate of return on the stock is 20%, what is the current value of the stock today? A) $30 B) $50 C) $100 D) $54 E) None of the above Answer: B Response: P = (6/(0.2-0.08) = 50 5. WorldTour Co. has just now paid a dividend of $6 per share (Do), the dividends are expected to grow at a constant rate of 5% per year forever. If the required rate of return on the stock is 15%, what is the current value on stock (after paying the dividend)? A) $63 B) $56 C) $40 D) $48 E) None of the above Answer: A Response: P = (6*1.05)/(0.15 0.05) = 63 6.
First cash flow: FV = 3581.70 (already done) Second cash flow: PV = -4000, N = 6, I/YR = 6, solve for FV = 5674.08 Third cash flow: PV = -8000, N=2, I/YR = 6; solve for FV = 8988.80 ANSWER: 3581.70+5674.08+8988.80 = $18,244.58 Question 1c Using the information from Question 1b, what will be the total accumulated value at the end of 10 years, if the interest rate is expected to be 6% for only the first three years, followed by 8% for the next five years, and 10% thereafter? First cash flow: PV = -2000, N=3, I/YR =6, solve for FV = 2382.03 PV = -2382.03, N = 5, I/YR = 8, solve for FV = 3499.98 PV = -3499.98, N = 2, I/YR = 10, solve for FV = 4,234.97 Second cash flow: PV = -4000, N = 4, I/YR = 8, solve for FV = 5441.96 PV = -5441.96, N = 2, I/YR = 10, solve for FV = 6584.77 Third cash flow: PV = -8000, N = 2, I/YR = 10, solve for FV = 9680.00 ANSWER: 4234.97 + 6584.77 + 9680.00 = $20,499.74 Question 1d Using the information from 1b, what equal amounts should be withdrawn in years 5 an 6, if the total accumulated value at the end of ten years is
During 10 years, the investors will reinvest all the cash flows into the company, so maintaining the growth of 7.45% each year. The return on equity used for the valuation is the rate of 7.45% which is the return on PacifiCorp equity on 2005. For the cost of equity, the capital would be invested in MidAmerican if the company did not take the acquisition. Therefore, I consider the rate of return on MidAmerican on 2004 (5.72%) as the cost of equity of PacifiCorp. Dividing the present value of future cash flows by the cost of the investment indicates that every dollar invested buys securities worth $1.18.