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# Return on Stocks, YTM of bonds

An issue of common stock is expected to pay a dividend of \$4.0 at the end of the year. Its growth rate is equal to 3%, and the current share price is \$40. What is the required rate of return on the stock?

a) between 7% and 10%

b) between 10% and 12%

c) between 12% and 14%

d) between 14% and 17%

An issue of common stock is selling for \$57.20. The year end dividend is expected to be \$2.32 assuming a constant growth rate of 6%. What is the required rate of return?

a) 10.3%

b) 10.1%

c) 4.1%

d) none of the above

What is the approximate yield to maturity for a seven-year bond that pays 11% interest on a \$1000 face value annually if the bond sells for \$952

a) 10.5%

b) 10.6%

c) 11.9%

d) 12.0%

#### Solution Preview

Stock and bond questions
An issue of common stock is expected to pay a dividend of \$4.0 at the end of the year. Its growth rate is equal to 3%, and the current share price is \$40. What is the required rate of return on the stock?

a) between 7% and 10%

b) between 10% and 12%

c) between 12% and 14%

d) between 14% and 17%

Answer: c) between 12% and 14%

Po= Div1/ ...

#### Solution Summary

The solution calculates the required rate of return on stocks, and approximate yield to maturity for a bond

\$2.19