Yield to maturity, price, value of stock, required rate of return
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1. Wilson Wonders' bonds have 12 years remaining to maturity. interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10% the bonds sell at a price of $850. What is their yield to maturity?
2. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to marutity of 8.5%. What is the price of the bonds?
3. Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of the year (i.e. D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of the company's stock?
4. Basil Pet products has preferred stock outstanding which pays a dividend of $5 at the end of each year. The preferred stock sells for $50 a share. What is the preferred stock's required rate of return?
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The yield to maturity, price, value of stock and the required rate of return is determined.
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Answer:
1. Wilson Wonders' bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10% the bonds sell at a price of $850. What is their yield to maturity?
We have,
Time to maturity=12 years
Par value=$1,000
Coupon rate=10%
Price of the bond=$850
Hence,
As it is difficult to calculate YTM with ...
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- MBA, Indian Institute of Finance
- Bsc, Madras University
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