Explore BrainMass
Share

# Valuation

7.) Heather Smith is considering a bond investment in Locklear Airlines. The \$1,000 par value bonds have a quoted annual interest rate of 9 percent and interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 15 years to maturity. Compute the price of the bonds based on semiannual analysis.

8.) The preferred stock of Denver Savings and Loan pays an annual dividend of \$5.60. It has a required rate of return of 8 percent. Compute the price of the preferred stock.

9.) Stagnant Iron and Steel currently pays a \$4.20 annual cash dividend (D0). They plan to maintain the dividend at this level for the foreseeable future as no future growth is anticipated.

Of the required rate of return by common stockholders (Ke) is 12 percent, what is the price of the common stock?

#### Solution Preview

7.) Heather Smith is considering a bond investment in Locklear Airlines. The \$1,000 par value bonds have a quoted annual interest rate of 9 percent and interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 15 years to maturity. Compute the price of the bonds based on semiannual analysis.

The price of the bond is the PV of the interest and the principal amount. The interest amount is 1000X9%=\$90 per annum of \$45 every six months and the principal amount is \$1,000. The PV of the interest amount can be found using the PVIFA table since the ...

#### Solution Summary

The solution has 3 problems relating to valuation of a bond, preferred stock and common stock

\$2.19