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Important information about Bond and Stock Valuation

Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7 percent.
b. 10 percent.
c. 13 percent.

Harrison Ford Auto Company has a $1,000 par value bond outstanding that pays 11 percent interest. The current yield to maturity on each bond in the market is 8 percent. Compute the price of these bonds for these maturity dates:
a. 30 years.
b. 15 years.
c. 1 year.

Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 9 percent annual interest. The current yield to maturity on such bonds in the market is 12 percent. Compute the price of the bonds for these maturity dates:
a. 30 years.
b. 15 years.
c. 1 year.

You are called in as a financial analyst to appraise the bonds of the Holtz Corporation. The $1,000 par value bonds have a quoted annual interest rate of Analyzing bond price changes 14 percent, which is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 15 years to maturity.
a. Compute the price of the bonds based on semiannual analysis.
b. With 12 years to maturity, if yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds?

Static Electric Co. currently pays a $2.10 annual cash dividend (D0). It plans to maintain the dividend at this level for the foreseeable future as no future growth is anticipated. If the required rate of return by common stockholders (Ke) is 12 percent, what is the price of the common stock?

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Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7 percent.
b. 10 percent.
c. 13 percent.

The current price of the bond is the Present Value (PV) of the interest and principal. The discounting rate is the YTM. The interest amount is $80 and is an annuity. The PV can be found using the PVIFA table. The principal repayment is a lump sum and the PV can be found using the PVIF table.
a. 7%
Present Value of Interest Payments
PVA = A x PVIFA (n = 25, i = 7%)
PVA = $80 x 11.654 = $932.32
Present Value of Principal Payment at Maturity
PV = FV x PVIF (n = 25, i = 7%)
PV = $1,000 x .184 = $184
Total Present Value
Present Value of Interest Payments $ 932.32
Present Value of Principal Payments 184.00
Total Present Value or Price of the Bond $1,116.32

b. 10 percent yield to maturity

PVA = A x PVIFA (n = 25, i = 10%)
PVA = $80 x 9.077 = $726.16
PV = FV x PVIF (n = 25, i = 10%)
PV = $1,000 x .092 = $92
The price today is 726.16+92=$818.16

c. 13 percent yield to maturity

PVA = A x PVIFA (n = 25, i = 13%)
PVA = $80 x 7.330 = $586.40
PV = FV x PVIF (n = 25, i = 13%)
PV = $1,000 x .047 = $47
The price is 586.40+47=$633.40

Harrison Ford Auto Company has a $1,000 par value ...

Solution Summary

The solution has various question relating to stock and bond valuation

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