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##### A companys common stock dividends are anticipated to grow

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**Question**

1.;A companys common stock dividends are anticipated to grow at a;constant 5.5% growth rate per year going forward. The company just;paid an annual dividend (that is, D-zero) of $3 per share. Whats the;intrinsic value of the stock based on the following required rates of return?;a.;6%;b.;8%;c.;10%;d.;12%;If the stock is currently selling for $40 per share, is the stock;a good buy? Interpret the results and justify your decision.;2.;A company just paid an annual dividend of $1.50 per share.;Dividends are anticipated to grow at a rate of 17% per year for the next;five years and then reduce down to a growth rate of 8.5% per year;forever. The stocks beta is 1.2, the risk-free rate is 4%, and the expected;return on the overall stock market is 11%. Whats the intrinsic value of the;companys common stock?;1.;Assume that the company that you selected for the Module 1 SLP;has a bond outstanding that matures in 20 years and has a coupon rate;of 6.5%. The par value of the bond is $1,000.;a.;If the yield to maturity is 8% and the bond pays interest on an;annual basis, whats the current price of the bond? Is the bond selling for;a premium or discount? How can you tell?;b.;If the yield to maturity is 8% but the bond pays interest on a semiannual basis instead of an annual basis, whats the current price of the;bond? Is it different from the value when using annual compounding?;Explain.;c.;Now, assume that the economy enters into a recession and;interest rates fall. The bonds yield to maturity is now 5%. Whats the;bonds new price? How does the price compare with your answer in part;a? Why did the bonds value change?;2.;A bond matures in ten years and is currently selling for $1,125.;The bond pay interest annually, has a par value of $1,000, and a yield to;maturity of 10.75%. Whats the bonds current yield?

Paper#25698 | Written in 18-Jul-2015

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