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Valuation models of securities

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1. Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day's close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.

2. The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.

3. HiTech, Inc.'s growth for the future is forecasted to be a constant 10 percent. HiTech's next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.

4. Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.

5. HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.

6. Assuming semi-annual compounding, what is the price of a zero coupon bond that matures in 3 years if the market interest rate is 5.5 percent? Assume par value is $1000.

7. Using semi-annual compounding, what is the price of a 5 percent coupon bond with 10 years left to maturity and a market interest rate of 7.2 percent? Assume that interest payments are paid semi-annually and that par value is $1000.

8. Using semi-annual compounding, what is the yield to maturity on a 4.65 percent coupon bond with 18 years left to maturity that is offered for sale at $1,025.95? Assume par value is $1000.

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Solution Summary

The solution depicts the steps to estimate the price of common stock, preferred stock, zero-coupon bond and coupon paying bonds.

See Also This Related BrainMass Solution

Security Valuation Models

Problem 1: Watters Umbrella Corp issed 15 yr bonds 2 yrs ago at a coupon rate of 7.8%. The bonds make semiannual payments. If these bonds currently sell for 105% of par value, what is the YTM?

Problem 2: The next dividend payment by ZYX, Inc., will be $2.85 per share. The dividends are anticipated to maintain a 4.5% growth rate, forever. If ZYX stock currently sells for $84 per share, what is the required return?

Problem 3: Mickelson Corporation will pay a $2.90 per share dividend next year. The company pledges to increases its duvudebd by 4.75 percent per year, indefinitely. If you require an 11 percent return on your investment, how much will you pay for the company's stock?

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