Sun co.’s bonds, maturing in 7 years, pay 8% interest on a $1,000 face value. However, interest is paid semi-annually. If your required rate of return is 10%, what is the value of the bond? How would your answer change if the interest were paid annually? 7)
Sharp Co. bonds are selling in the market for $1,045. These 15 year bonds pay 7% interest annually on a $1,000 par value. If they are purchased at the market price, what is the expected rate of return?
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. Your required rate of return is 10 percent. 1.
Calculate the value of the bond.
ABC Ltd paid a dividend of Rs 4 per share at the end of the year. It is expected to grow by 8 percent each year for the next 4 years. The market price of the shares is expected to be Rs 60 at the end of 4 years. Assuming 12 percent required rate of return of investors, at what price should the shares of ABC Ltd sell? 10)
Blackburn and Smith common stock currently sells for $23 per share. The company’s executives anticipate a constant growth rate of 10.5 percent and an end-of-year dividend of $2.50.What is your expected rate of return? If you require a 17% return, should you purchase the stock 11)
BMM industries pays a dividend of $ 2 per quarter, the dividend yield on its stock is reported at 4.8%. What price is the stock selling at? 12)
Nonconstant Growth. Tattletale News Corp. has been growing at a rate of 20 percent per year, and you expect this growth rate in earnings and dividends to continue for another 3 years.
a. If the last dividend paid was $2, what will the next dividend be?
b. If the discount rate is 15 percent and the steady growth rate after 3 years is 4 percent, what
should the stock price be today?
Topic: Capital Budgeting
Mutually Exclusive Investments. Here are the cash flow forecasts for two mutually exclusive projects:
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