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Finance: GE bond valuation, return on Sony stock, Mill Due share price, Owego CAPM

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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Solution Preview

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 ...

Solution Summary

The solution explains some finance questions relating to GE bond valuation, return on Sony stock, Mill Due share price, and Owego CAPM