Corporation issued 15 year, 7% annual coupon bonds at par of $1000 5 years ago.
ID: 2773067 • Letter: C
Question
Corporation issued 15 year, 7% annual coupon bonds at par of $1000 5 years ago. Today the market interest rate on silimar risk bonds is 5%. What is the current selling price of the bonds given that they now have 10 years to maturity?
a. 1154.43 b. 1207.59 c. 1000 d. 1700
What is the dividend yield for a stock with a $2.40 dividend and share price of $40?
a. 6% b. 5.8% c. 9% d. 10%
Stock NUM has a beta of .8. Risk free rate is 4%, RPm is 6%. Growth is 5%. 1. What is the required return? 2. If the current dividend was $2, what is the stock price?
a. 5.9%, 70
b. 8.8%, 52.63
c. 8.8%, 55.26
d. 8.8%, 22.73
You are advising a friend on two stock choices. Details are below:
Return 2012 2013 2014
ABC (9) 19 5
DEF (12) 24 3
What is the average return for each ABC and DEF? Just based on the above, which stock has a higher risk?
a 5%, 5%, ABC
b 11%,13% ABC
c 5%,5%, DEF
d 11%,13% DEF
Explanation / Answer
a 1,154.43
a. 1154.43 Statemnet showing Price or Intrinsic Value Particulars Time PVf @5% Amount PV Cash inflows (Interest) 1.00 0.9524 70.00 66.67 Cash inflows (Interest) 2.00 0.9070 70.00 63.49 Cash inflows (Interest) 3.00 0.8638 70.00 60.47 Cash inflows (Interest) 4.00 0.8227 70.00 57.59 Cash inflows (Interest) 5.00 0.7835 70.00 54.85 Cash inflows (Interest) 6.00 0.7462 70.00 52.24 Cash inflows (Interest) 7.00 0.7107 70.00 49.75 Cash inflows (Interest) 8.00 0.6768 70.00 47.38 Cash inflows (Interest) 9.00 0.6446 70.00 45.12 Cash inflows (Interest) 10.00 0.6139 70.00 42.97 Cash inflows (Maturity Amount) 10.00 0.6139 1,000.00 613.91 Intrinsic Value of Bond 1,154.43 a 6% Dividend Yield = Dividend / Share price = 2.40/40 = 6% c. 8.8%, 55.26 ke = Rf +B*RPM ke = 4% + .8*6% = 8.8% P0 = 2*1.05/(8.8%-5%) = $55.26 a 5%, 5%, ABC ABC = (-9%+19%+5%)/3 = 5% DEF = (-12% +24%+3%)/3 =5%