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Corporate Bonds, Earnings and Dividends

1. A 10-year Corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually.
If market yields decrease shortly after the T-bond is issued, what happens to the bond's:

a. price?

b. coupon rate?

c. yield to maturity?

2. Company ABC's earnings and dividends will grow at 0.5% monthly during the next five years.
Its growth will stop after year 5. In year 6 and afterward, it will pay out all earnings as dividends.
Assume next year's EPS is $10 and the dividend is $5 and the market capitalization rate is 9%.

a. What is ABC's stock price?

Solution Preview

1. A 10-year Corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's:

a. price?
The price of the bond will increase as the yield on the bond decreases.

b. coupon rate?
The coupon rate will not change. It will remain the same, no matter what ...

Solution Summary

This solution assists in explaining corporate bonds, price, coupon rate, and yield to maturity.

$2.19