Part One: Quantitative Exercises In this part of the assignment, you will: The l
ID: 2708875 • Letter: P
Question
Part One: Quantitative Exercises
In this part of the assignment, you will:
Part One: Quantitative Exercises
In this part of the assignment, you will:
- Determine the value of stocks: preferred and common.
- Estimate the value of stock with high growth, and then estimate the value of stock with constant growth.
- Determine the components of stock valuation models.
- Determine the value of bonds paying annual and semiannual interest payments, and determine the yield to maturity of bonds paying annual and semiannual interest payments.
Week 3, Assignment 2
Part One: Quantative Exercises
Stocks Answers 1. Stock. What is the value of a stock with a
a. $2.50 dividend just paid and an 8% required return with 0% growth? 2.5(1+0)/(.08-0)=2.5/.08= ? b. $3 dividend just paid and a 8% required return with 2% growth? 3(1+.02)/(.08-.02)=3.06/.06= 51 c. $7 dividend to be paid and a 10% required return with 2% growth? 7(1+.02)/(.1-.02)=8.4/.08= ?
2. Stock. What is the required rate of return on a stock with a
a. $2.50 expected dividend and a $19 price with 6% growth? 2.5/19+.06=.19 or 19% rrr b. $2.75 expected dividend and a $20 price with 8% growth? 2.75/20+.08=? c. $2.50 expected dividend and a $19 price with 9% growth? 2.5/19+.09=.22 or 22%
3. Stock. What is the growth rate of the stock with a
a. $3.00 expected dividend and a $20.60 price with 15% required return? 3/20.60-.15=0% gr rate b. $2.40 expected dividend and a $25.35 price with 10% required return? 2.40/25.35-.10=? gr rate c. $2 expected dividend and a $8.30 price with 11% required return? 2/8.3-.11=?% grw rate
Bonds
1. Bond. What is the value of a $1,000 par value bond with annual payments of an
a. 10% coupon with a maturity of 10 years and a 15% required return? pmt=100, n=10, I=15, fv=1000, pv=749.06 b. 8% coupon with a maturity of 10 years and a 8% required return? pmt=80, n=10, I=8, fv=1000, pv=1000 c. 11% semiannual coupon with a maturity of 20 years and a 11% required return? pmt=55, n=40, I=5.5, fv=1000 pv=? d. 8% semiannual coupon with a maturity of 20 years and a 9% required return? pmt=40, n=40, I=4.5, fv=1000 pv=907.99
2. Bond. What is the yield to maturity of a $1000 par value bond with an
a. 10% annual coupon and 10 years to maturity and a $1,000 price? pmt=100, n=10, pv=-1000,fv=1000, I=10 b. 9.5% annual coupon and 20 years to maturity and a $788 price? pmt=95, n=20, pv=-788, fv=1000, I=13 c. 5.0% annual coupon and 8 years to maturity and a $800 price?
Explanation / Answer
1) Price = Expected dividend/( Required rate - growth rate)
a) So, price = 2.5(1+0)/(.08-0)=2.5/.08=$ 31.25
c) price = 7(1+.02)/(.1-.02)=8.4/.08= $105
2) Required rate = Expected dividend/ price + growth rate
b) Required rate = (2.75/20) +.08 = 0.2175 = 21.75%
3)Growth rate = Required rate - Expected dividend/ price
b)
Growth rate = .10- (2.40/25.35) = 0.53%
c)
Growth rate = .11-2/8.3 = -13.09 % , (pls check if the price given is correct for this part)
BONDS:
1)c) PV = $1000 (can be checked with excel)
2) c) pmt = 50 , n =8 , FV = 1000 , PV = - 800 , I = 8.55%