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Corporate bond

QUESTION 1

You paid $832 for a corporate bond that has a 5.51% coupon rate. What is the current yield?

Hint: if nothing is mentioned, then assume par value = $1,000

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 2

The yield to maturity on a Marshall Co. premium bond is 7.6 percent. This is the:

nominal rate.

effective rate.

real rate.

current yield.

coupon rate.

QUESTION 3

The rate required in the market on a bond is called the:

liquidity premium

call yield

risk premium

yield to maturity

current yield

QUESTION 4

A premium bond is a bond that:

is callable within 12 months or less.

has a market price which exceeds the face value.

has a par value which exceeds the face value.

is selling for less than par value.

has a face value in excess of $1,000.

QUESTION 5

ABC has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 16 years; Coupon rate: 4%;

Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 9.64%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 6

ABC’s Inc.’s bonds currently sell for $1,280 and have a par value of $1,000. They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050. What is their yield to call (YTC)?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 7

The 8 percent coupon bonds of the Peterson Co. are selling for 98 percent of par value. The bonds mature in 5 years and pay interest semi-annually. These bonds have a yield to maturity of _____ percent.

QUESTION 8

ABC’s bonds have a 9.5 percent coupon and pay interest semi-annually. Currently, the bonds are quoted at 106.315 percent of par value. The bonds mature in 8 years. What is the yield to maturity?

QUESTION 9

Stealers Wheel Software has 5.25% coupon bonds on the market with nine years to maturity. The bonds make semi-annual payments and currently sell for 109.17% of par. What is the current yield?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box

QUESTION 10

ABC has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 13 years; Coupon rate: 4%;

Assume annual coupon payments. Calculate the price of this bond if the YTM is 7.12%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 11

The 5.2 percent, $1,000 face value bonds of Tim McKnight, Inc., are currently selling at $889.55. What is the current yield?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 12

Assume that you wish to purchase a 14-year bond that has a maturity value of $1,000 and a coupon interest rate of 5%, paid semiannually. If you require a 5.77% rate of return on this investment (YTM), what is the maximum price that you should be willing to pay for this bond? That is, solve for PV.

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 13

ABC wants to issue 19-year, zero coupon bonds that yield 11.5 percent. What price should they charge for these bonds if they have a par value of $1,000? That is, solve for PV. Assume annual compounding.

Hint: zero coupon bonds means PMT = 0

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 14

The 12.4 percent coupon bonds of the Peterson Co. are selling for $1,114.17. The bonds mature in 5 years and pay interest semi-annually. These bonds have current yield of _____ percent.

Enter your answer in percentages rounded off to two decimal points.

QUESTION 15

ABC Corp. issued 15-year bonds 2 years ago at a coupon rate of 10.6%. The bonds make semi-annual payments. If these bonds currently sell for 97% of par value, what is the YTM?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 16

A firm’s bonds have maturity of 10 years with a $1000 face value, an 8% semi-annual coupon, are callable in 5 years, at $1,050, and currently sells at a price of $1,100. What is the yield to call (YTC)?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 17

BCD’s $1,000 par value bonds currently sell for $798.40. The coupon rate is 10%, paid semi-annually. If the bonds have 5 years to maturity, what is the yield to maturity?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box

Question 1

ABC’s stock has a required rate of return of 13%, and it sells for $74 per share. The dividend is expected to grow at a constant rate of 4.7% per year. What is the expected year-end dividend, D1?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box

Question 2

If D1 = $4.64 and P0 = $64.98, what is the dividend yield?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 3

ABC Enterprises’ stock is currently selling for $90.2 per share. The dividend is projected to increase at a constant rate of 3.3% per year. The required rate of return on the stock is 12%. What is the stock’s expected price 5 years from today (i.e. solve for P5)?

Question 4

A stock just paid a dividend of D0 = $0.6. The required rate of return is rs = 13.2%, and the constant growth rate is g = 6.7%. What is the current stock price?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box

Question 6

The common stock of ABC Industries is valued at $30.2 a share. The company increases their dividend by 4.2 percent annually and expects their next dividend to be $5.6. What is the required rate of return on this stock? That is, solve for r.

Question 7

ABC Inc., is expected to pay an annual dividend of $0.3 per share next year. The required return is 12.7 percent and the growth rate is 6 percent. What is the expected value of this stock five years from now?

Question 8

ABC’s last dividend was $4.6. The dividend growth rate is expected to be constant at 30% for 3 years, after which dividends are expected to grow at a rate of 5% forever. If the firm’s required return (rs) is 15%, what is its current stock price (i.e. solve for Po)?

Question 9

ABC Company’s last dividend was $0.8. The dividend growth rate is expected to be constant at 17% for 2 years, after which dividends are expected to grow at a rate of 6% forever. The firm’s required return (rs) is 16%. What is its current stock price (i.e. solve for Po)?

Question 10

The common stock of Wetmore Industries is valued at $54 a share. The company increases their dividend by 5.8 percent annually and expects their next dividend to be $4.5. What is the required rate of return on this stock? That is, solve for r.

Question 11

ABC Enterprises’ stock is expected to pay a dividend of $0.7 per share. The dividend is projected to increase at a constant rate of 4.2% per year. The required rate of return on the stock is 16.6%. What is the stock’s expected price 3 years from today (i.e. solve for P3)?

Question 12

If D1 = $6.4, g (which is constant) = 5.2%, and P0 = $62.4, what is the required rate of return on the stock? That is, solve for r.

Question 13

A stock is expected to pay a dividend of $1.2 at the end of the year. The required rate of return is rs = 12.3%, and the expected constant growth rate is g = 7.2%. What is the stock’s current price?

Question 14

ABC’s last dividend paid was $0.5, its required return is 17.3%, its growth rate is 3.7%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 7 years, i.e., what is P7?

Question 15

If D0 = $2.5, g = 2.8%, and P0 = $76.6, what is the required rate of return on the stock? That is, solve for r.

Question 16

ABC is expected to pay a dividend of $1 per share at the end of the year. The stock sells for $189 per share, and its required rate of return is 18.8%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (i.e. solve for g)?

Suppose the company is expected to pay a divided of $2.5 and the required rate of return is 10% and the growth rate is 4%. What is the price of the stock after 5 years? after 10 years? after 12 years?

Suppose the company just paid a divided of $2.5 and the required rate of return is 10% and the growth rate is 4%. What is the price of the stock after 5 years? after 10 years? after 12 years?

ABC’s stock is currently selling for $60 per share. The firm is expected to pay a dividend of $3.60. If the cost of equity is 9%, compute the growth rate.

Suppose the company just paid dividend of $1. The dividends are expected to grow at 20% in Year 1 and 15% in Year 2. After that, the dividends will grow at a constant rate of 5% forever. If the required rate of return is 10%, compute today’s price of the stock.

Suppose the company just paid dividend of $1. The dividends are expected to grow at 25% in Year 1 and 20% in Year 2, and 15% in Year 3. After that, the dividends will grow at a constant rate of 5% forever. If the required rate of return is 10%, compute today’s price of the stock.

Suppose the company will not pay any dividends in Years 1 and 2. Suppose that the company pays dividend of $1 in Year 3 and after that the dividends will grow at 20% for the next two years. After that the dividends will grow at a constant rate of 5% forever. If the required rate of return is 10%, compute today’s price of the stock.

ABC Industries will pay a dividend of $2 next year on their common stock. The company predicts that the dividend will increase by 5% each year indefinitely. What is the dividend yield if the stock is selling for $50 a share? What is the required rate of return?

The dividends are expected to grow at 7% per year in the future. ABC’s common stock sells for $23 per share and its last dividend was $2. What is the cost of equity? What is the dividend yield?

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