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Yield to Maturity, Constant Growth and Preferred Stock

Yield to maturity:Rudy Sandberg wants to invest in four-year bonds that are currently priced at $789.69. These bonds have a coupon rate of 5.75 percent and pay semiannual coupons. The current market yield on this bond is _____%.

(Round your answer to 2 decimal places. All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation.)

Yield to maturity: Electrolex, Inc., has four-year bonds outstanding that pay a coupon rate of 2.46 percent semiannually. If these bonds are currently selling at $840.52, the yield to maturity that an investor can expect to earn on these bonds is _____ % and the effective annual yield is _____%.

(Round your answer to 2 decimal places. All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation).

Constant growth: Moriband Corp. just declared a dividend of $2.06 yesterday. The company is expected to grow at a steady rate of 5 percent for the next several years. If stocks such as these require a rate of return of 14 percent, what should be the market value of this stock?
(Round your dividend to 3 decimal places, i.e., $3.756, and your final answer to the nearest penny, i.e., $14.75)
P0 = $___________

Constant growth: Reco Corp. is expected to pay a dividend of $2.19 next year. The forecast for the stock price a year from now is $40.00. If the required rate of return is 17.0 percent, what is the current stock price? Assume constant growth.
(Round the growth rate to 4 decimal places, round your final answer to the nearest penny, i.e., $14.75)
P0 = $___________

Preferred stock: The preferred stock of Axim Corp. is selling currently at $52.98. If your required rate of return is 11.4 percent, what is the dividend paid by this stock?
(Round the price to the nearest penny, i.e., $14.75.)
D = $____________

Constant growth: Jenny Banks is interested in buying the stock of Fervan, Inc., which is growing at a constant rate of 6.5 percent. Last year, the firm paid a dividend of $2.65. Her required rate of return is 17.5 percent.
a. What is the current price for this stock?
(Round the value of the stock to the nearest penny, i.e., $14.75)
P0 = $____________
b. What would be the price of the stock in year 5?
(Round the value of the stock to the nearest penny, i.e., $14.75)
P5 = $____________.

Solution Summary

The yield to maturity, constant growth and preferred stocks are examined in the solution.

$2.19