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BOND PROBLEM SOLUTIONS

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Question;1.;Six years ago;The Corzine Company sold a 20-year bond issue with a 14 percent annual coupon;rate and a 9 percent call premium.;Today, Corzine called the bonds.;The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for;investors who purchased the bonds when they were issued and who surrender them;today in exchange for the call price.1.;You just;purchased a bond which matures in 5 years.;The bond has a face value of $1,000, and has an 8 percent annual;coupon. The bond has a current yield of;8.21 percent. What is the bond?s yield;to maturity?1.;The Dass;Company?s bonds have 4 years remaining to maturity. Interest is paid annually, the bonds have a;$1,000 par value, and the coupon interest rate is 9 percent. What is the yield to maturity at a current;market price of $829? Would you pay $829;for one of these bonds if you thought that the appropriate rate of return was;12 percent?;1.;Sitel Inc. has a;bond which matures in 7 years and currently sells for $1,020. The bond has a face value of $1,000 and a;yield to maturity of 10.5883 percent.;The bond pays coupons semiannually.;What is the bond?s current yield?;1.;Look up the;prices of AT&T bonds in the Wall;Street Journal. If AT&T were to;sell a new issue of $1,000 par value long-term bonds, approximately what coupon;interest rate would it have to set on the bonds if it wanted to bring them out;at par?;1. A stock is trading at $80 per share. The stock is expected to have a year-end;dividend of $4 per share which is expected to grow at some constant rate g;throughout time. The stock?s required;rate of return is 14 percent. If you are;an analyst who believes in efficient markets, what would be your forecast of g?1. What will be the nominal rate of return on a preferred;stock with a $100 par value, a stated dividend of 8 percent of par, and a;current market price of $140?1. Microtech Corporation is expanding rapidly, and it;currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin;paying dividends, with the first dividend of $1.00 coming 3 years from;today. The dividend should grow rapidly;? at a rate of 50 percent per year ? during Years 4 and 5. After Year 5, the company should grow at a;constant rate of 8 percent per year. If;the required return on the stock is 15 percent, what is the value of the stock;today?1. You buy a share of The Xu Corporation stock for;$21.40. You expect it to pay dividends;of $1.07, $1.1449, and $1.2240 in Years 1, 2, and 3, respectively, and you;expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. What is this stock?s expected total rate of;return?

 

Paper#51370 | Written in 18-Jul-2015

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