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# Bond, Preferred stock, Common stock

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1. Burns Fire and Casualty Company has \$1000 par value bonds outstanding at 11% interest. The bonds will mature in 20 years. Compute the current price of the bond if the present yield to maturity is at 6%. (Interest payments are on an annual basis)

3. Analogue Technology has preferred stock outstanding that pays a \$9 annual dividend. IT has a price of \$76. What is the required rate of return (yield) on preferred stock.

4. Electric Company currently pays a 2.10 annual cash dividend (d) IT plans to maintain the dividend at this level for the foreseeable future as no future is anticipated. If the required rate of return by common stockholders (K) is 12 %, what is the price of the common stock.

#### Solution Preview

1. Burns Fire and Casualty Company has \$1000 par value bonds outstanding at 11% interest. The bonds will mature in 20 years. Compute the current price of the bond if the present yield to maturity is at 6%. (Interest payments are on an annual basis)

To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per ...

#### Solution Summary

The solution answers 3 questions on Price of bond, Required rate of return (yield) on preferred stock and Price of the common stock

\$2.19