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##### FIN500 - 2

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Question;INSTRUCTIONS: This case assignment is focused on Bond valuation and;stock valuation concepts and procedures. Please provide step by step procedure;to reach answers.;1.;Sentry Cop. Bonds have a coupon payment of;7.25%. The bonds have a par value of $1000, a current price of $1125, and they;will mature in 13 years.;a);What is the yield to maturity on these bonds if;it pay coupon annually?;b);What is the yield to maturity on these bonds if;it pay coupon semiannually?;2.;One year ago L&L Co. issued 15-year;non-callable, 7.5% annual coupon bonds at their par value ($1000). Today, the;market interest rate on these bonds is 5.5%. What is the current price of the;bonds if this is a non-callable bond?;3.;Currently, McCue Inc.'s bonds currently sell for $1,250. They pay a $120 annual coupon, have a 15-year;maturity, and a $1,000 par value, but they can be called in 5 years at;$1,050. Assume that no costs other than;the call premium would be incurred to call and refund the bonds, and also;assume that the yield curve is horizontal, with rates expected to remain at;current levels on into the future. What is the difference between this bond's;YTM and its YTC? (Subtract the YTC from;the YTM.);4.;A;25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875. If the yield to maturity remains at its;current rate, what will the price be 5 years from now?;5.;Zumwalt;Corporation's Class S bonds have a 12-year maturity, $1,000 par value, and a;5.75% coupon paid semiannually (2.875% each 6 months), and those bonds;sell at their par value. Zumwalt's Class;A bonds have the same risk, maturity, and par value, but the A bonds pay a;5.75% annual coupon. Neither bond;is callable. At what price should the annual;payment bond sell? (hint: Bonds with same risk should have same effective;rate of return, or YTM).;6.;A firm plans to pay an annual dividend of $0.48 next year.;Dividends and earnings have been growing at a compound annual rate of 8 percent;and are expected to continue growing at that rate. What is an investor's;required rate of return on the firm?s common equity if the current price of its;stock is $12 per share?;7.;Over the past 7 years the dividends of a company have grown from;$0.24 to the current level of $.53. What is the approximate annual compound;growth rate of dividends for this company?;8.;The earnings and dividends of a firm are expected to grow at an annual;rate of 15 percent over the next 4 years and then slow to a constant growth;rate of 8 percent per year thereafter.;The firm currently pays a dividend of $0.50 per share (D0 =;$0.50). What is the value of this firm?s stock to an investor who requires a 14;percent rate of return?;9.;Over the past 5 years the earnings per share (EPS) of a local firm;have grown from $0.62 to $0.91. If an investor in this firm is assumed to have;a required rate of return of 14%, what is the current value of its common stock;if its current dividend is 0.12 (D0 = $0.12)? Assume EPS (and;therefore its dividends per share) will continue to grow at a constant rate.;10. A company?s stock currently pays a dividend of;$1.20 per share (D0 = $1.20). Dividends are expected to increase at;the rate of $0.10 per share for the next eight years. Determine the current;value of this stock to an investor who expects to be able to sell the stock for;$28 after 5 years. Assume that the investor requires a 12 percent rate of;return on the security.;11. A company?s common stock;is selling for $16. The stock just paid;a dividend (D0) of $.60 and this dividend is expected to grow by 15%;per year for three years. After that it;will grow at a constant rate of 4%. The;stock?s beta is 1.7, the risk-free rate of interest is 1.75% and the market;risk premium is 5.25%. According to the DCF model, what is the;intrinsic value of the stock today?;Given the current stock price today (P0 = $16), should you;buy the stock and briefly explain why or why not?;12. A start-upwas founded 10 years ago. It has been profitable for the last 5 years;but it has needed all of its earnings to support growth and thus has never paid;a dividend. Management has indicated;that it plans to pay a $0.25 dividend 3 years from today, then to increase it;at a relatively rapid rate for 2 years, and then to increase it at a constant;rate of 8.00% thereafter. Management's;forecast of the future dividend stream, along with the forecasted growth rates;is shown below. Assuming a required return;of 11.00%, what is your estimate of the stock's current value?;Year 0 1 2 3 4 5 6;Growth rate NA NA NA NA 50.00% 25.00% 8.00%;Dividends $0.000 $0.000 $0.000 $0.250 $0.375 $0.469 $0.506

Paper#49087 | Written in 18-Jul-2015

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