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Finance - Bond related Problems




Question;1.Assume that the company that you selected has a bondoutstanding that matures in 20 years and has a coupon rate of 6.5%. Thepar value of the bond is $1,000.a.If the yield to maturity is 9% and the bond pays interest on anannual basis, whats the current price of the bond? Is the bond selling fora premium or discount? How can you tell?b.If the yield to maturity is 7% but the bond pays interest on a semiannual basis instead of an annual basis, whats the current price of thebond? Is it different from the value when using annual compounding?Explain.c.Now, assume that the economy enters into a recession andinterest rates fall. The bonds yield to maturity is now 4%. Whats thebonds new price? How does the price compare with your answer in parta? Why did the bonds value change?2.A bond matures in ten years and is currently selling for $1,225.The bond pay interest annually, has a par value of $1,000, and a yield tomaturity of 11.75%. Whats the bonds current yield?1.A companys common stock dividends are anticipated to grow at aconstant 4.5% growth rate per year going forward. The company justpaid an annual dividend (that is, D-zero) of $3 per share. Whats theintrinsic 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 stocka good buy? Interpret the results and justify your decision.2.A company just paid an annual dividend of $2.50 per share.Dividends are anticipated to grow at a rate of 17% per year for the nextfive years and then reduce down to a growth rate of 8.5% per yearforever. The stocks beta is 1.2, the risk-free rate is 4%, and the expectedreturn on the overall stock market is 11%. Whats the intrinsic value of thecompanys common stock?


Paper#48360 | Written in 18-Jul-2015

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