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Semiannual Compounding, bonds, Securities; RRR, growth rate, common stock,

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Use semiannual compounding on all bond problems unless otherwise indicated

1. Will you invest in a security that has a current price of $50, a growth rate of 6% and an expected dividend of $3.80 if your RRR is 12%?

2. Would you invest in the stock in #18 if your RRR was 8%? Would you invest in it if the price fell to $45 at your RRR of 8%?

3. List at least three rights commonly associated with holding shares of a security?

4. List two advantages and two disadvantages of having a long position (owning) a preferred security.

5. Price a share of common stock that paid a dividend of $2 one period ago and has a growth rate of 5% when your RRR is 10%.

6. What is the coupon yield on a $1,000 bond that is currently trading at 98, has two years before maturity and a YTM of 6%. The bond pays interest semiannually.

7. What is the investors' RRR on a 3% $30 par preferred stock selling for $33?

8. Price a 5-year $500 5% baby bond with a YTM of 7%. Use semiannual compounding.

9. What would happen to the YTM of the bond in question #25 if the price of the bond increased?

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Semiannual Compounding; Equity Security; Discount Rate; Investor's RRR

See attached file.

Use semiannual compounding on all bond problems unless otherwise indicated

1. Determine the fair price of a $50 par preferred issue equity security (preferred stock) that pays a 3% dividend annually at a discount rate of 5%.

2. Calculate an investor's RRR if they buy an 8% $40 par preferred stock that is for $50.

3. What is the maximum price an investor with a required rate of return of 12% pay for a $60 par preferred stock that pays an annual dividend of 6%.

4. What would the yield on a $45 par 5% preferred stock be when the market is efficient?

5. Price a share of common stock using the dividend valuation model that paid a $3 dividend last period, has a 6% growth rate when your RRR is 15%.

6. Calculate the investors' required rate of return on a common stock that paid a dividend of $2 one period ago has a growth rate of 3%, and is currently trading at $28.

7. How much would you be willing to pay for a share of common stock that will pay a dividend of $5 this period and has a growth rate of 4% if your required rate of return on investments with similar risk is 9%?

8. You are considering investing in one of two common securities. You have determined that both securities carry similar degrees of risk. Security A has a current price of $40, a growth rate of 4% and one period ago paid a dividend of $4. Security B has a current price of $42, a growth rate of 3.5% and a current dividend of $3.75. Based on the securities returns alone which stock will you invest in?

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