Finance: GE bond valuation, return on Sony stock, Mill Due share price, Owego CAPM
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1. (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds
that mature in 8.5 years. If the required return on these bonds is 8% APR, what should be
the market price of these bonds?
2. (Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred
dividend is non-growing. What is the required return on Sony preferred stock?
3. (Stock valuation) Let's say the Mill Due Corporation is expected to pay a dividend of $5.00
per year on its common stock forever into the future. It has no growth prospects whatsoever.
If the required return on Mill Due's common stock is 14%, what is a share worth?
4. (CAPM) Owego Storage and Housing, Inc., is considering building a new warehouse in
Endicott, New York. Owego Storage has 2 million common shares outstanding. The share
price is $11. Assume rf = 4.5%, β = 0.75, and rM − rf = 11.5%. Estimate Owego Storage's
required return on its equity investment in the new warehouse.
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The solution explains some finance questions relating to GE bond valuation, return on Sony stock, Mill Due share price, and Owego CAPM
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1. The market price of the bonds is the present value of interest and principal. The semi annual interest payment is 1,000 X 6.75%/2 = $33.75, periods to maturity are 8.5 X 2 = 17, par value is $1,000 and the discounting rate is 8%/2=4%. The interest amount is an annuity and ...
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