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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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