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    Bond Valuation,Price,Yields & Common Stock Value

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    1. Bond prices and yields.

    Assume that the Christianson Corp. $1,000-par-value bond has a 5.700% coupon, matured on May 15, 2017, had a current price quote of 97.708, and had a yield to maturity (YTM) of 6.034%.

    Given this information, answer the following questions:

    a. What was the dollar price of the bond?
    b. What is the bond's current yield?
    c. Is the bond selling at par, at a discount, or at a premium? Why?
    d. Compare the bond's current yield calculated in part b to it's YTM and explain why they differ.

    2. Basic bond valuation.

    JD Designs Inc. has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.

    a. If bonds of similar risk are currently earning a 10% rate of return, how much should JD Designs Inc. bond sell for today?

    b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the JD Designs Inc bond.

    c. If the required return were at 12% instead of 10%, what would the current value of JD Designs' bonds be? Contrast this finding with your findings in part a and discuss.

    3. Common stock value - Constant Growth

    Darlington Inc. common stock paid a dividend of $1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future.

    a. What required rate of return for this stock would result in a price per share of $28?

    b. If Darlington Inc. expects both earnings and dividends to grow at an annual rate of 10%, what required rate of return would result in a price per share of $28?

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    Solution Summary

    The solution provides computation of Bond prices and yields;Basic bond valuation & Common stock value - Constant Growth